[House Report 109-589]
[From the U.S. Government Publishing Office]





109th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES
 2d Session                                                     109-589

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



 
              EXPANDING AMERICAN HOMEOWNERSHIP ACT OF 2006

                                _______
                                

 July 20, 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

                            ADDITIONAL VIEWS

                        [To accompany H.R. 5121]

      [Including cost estimate of the Congressional Budget Office]

  The Committee on Financial Services, to whom was referred the 
bill (H.R. 5121) to modernize and update the National Housing 
Act and enable the Federal Housing Administration to use risk-
based pricing to more effectively reach underserved borrowers, 
and for other purposes, 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..............................................     9
Background and Need for Legislation..............................     9
Hearings.........................................................    12
Committee Consideration..........................................    12
Committee Votes..................................................    13
Performance Goals and Objectives.................................    13
New Budget Authority, Entitlement Authority, and Tax Expenditures    13
Committee Cost Estimate..........................................    13
Congressional Budget Office Estimate.............................    13
Federal Mandates Statement.......................................    20
Advisory Committee Statement.....................................    20
Constitutional Authority Statement...............................    20
Applicability to Legislative Branch..............................    20
Section-by-Section Analysis of the Legislation...................    20
Changes in Existing Law Made by the Bill, as Reported............    24
Additional Views.................................................    49

                               Amendment

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

SECTION 1. SHORT TITLE AND TABLE OF CONTENTS.

  (a) Short Title.--This Act may be cited as the ``Expanding American 
Homeownership Act of 2006''.
  (b) Table of Contents.--The table of contents for this Act is as 
follows:

Sec. 1. Short title and table of contents.
Sec. 2. Findings and purposes.
Sec. 3. Maximum principal loan obligation.
Sec. 4. Extension of mortgage term.
Sec. 5. Cash investment requirement.
Sec. 6. Mortgage insurance premiums.
Sec. 7. Rehabilitation loans.
Sec. 8. Discretionary action.
Sec. 9. Insurance of condominiums.
Sec. 10. Mutual Mortgage Insurance Fund.
Sec. 11. Hawaiian home lands and Indian reservations.
Sec. 12. Conforming and technical amendments.
Sec. 13. Home equity conversion mortgages.
Sec. 14. Conforming loan limit in disaster areas.
Sec. 15. Participation of mortgage brokers and correspondent lenders.
Sec. 16. Sense of Congress regarding technology for financial systems.
Sec. 17. Savings provision.
Sec. 18. Implementation.

SEC. 2. FINDINGS AND PURPOSES.

  (a) Findings.--The Congress finds that--
          (1) one of the primary missions of the Federal Housing 
        Administration (FHA) single family mortgage insurance program 
        is to reach borrowers who are underserved, or not served, by 
        the existing conventional mortgage marketplace;
          (2) the FHA program has a long history of innovation, which 
        includes pioneering the 30-year self-amortizing mortgage and a 
        safe-to-seniors reverse mortgage product, both of which were 
        once thought too risky to private lenders;
          (3) the FHA single family mortgage insurance program 
        traditionally has been a major provider of mortgage insurance 
        for home purchases;
          (4) the FHA mortgage insurance premium structure, as well as 
        FHA's product offerings, should be revised to reflect FHA's 
        enhanced ability to determine risk at the loan level and to 
        allow FHA to better respond to changes in the mortgage market;
          (5) during past recessions, including the oil-patch downturns 
        in the mid-1980s, FHA remained a viable credit enhancer and was 
        therefore instrumental in preventing a more catastrophic 
        collapse in housing markets and a greater loss of homeowner 
        equity; and
          (6) as housing price appreciation slows and interest rates 
        rise, many homeowners and prospective homebuyers will need the 
        less-expensive, safer financing alternative that FHA mortgage 
        insurance provides.
  (b) Purposes.--The purposes of this Act are--
          (1) to provide flexibility to FHA to allow for the insurance 
        of housing loans for low- and moderate-income homebuyers during 
        all economic cycles in the mortgage market;
          (2) to modernize the FHA single family mortgage insurance 
        program by making it more reflective of enhancements to loan-
        level risk assessments and changes to the mortgage market; and
          (3) to adjust the loan limits for the single family mortgage 
        insurance program to reflect rising house prices and the 
        increased costs associated with new construction.

SEC. 3. MAXIMUM PRINCIPAL LOAN OBLIGATION.

  Paragraph (2) of section 203(b) of the National Housing Act (12 
U.S.C. 1709(b)(2)) is amended--
          (1) by striking subparagraphs (A) and (B) and inserting the 
        following new subparagraphs:
                  ``(A) not to exceed the lesser of--
                          ``(i) in the case of a 1-family residence, 
                        the median 1-family house price in the area, as 
                        determined by the Secretary; and in the case of 
                        a 2-, 3-, or 4-family residence, the percentage 
                        of such median price that bears the same ratio 
                        to such median price as the dollar amount 
                        limitation in effect under section 305(a)(2) of 
                        the Federal Home Loan Mortgage Corporation Act 
                        (12 U.S.C. 1454(a)(2)) for a 2-, 3-, or 4-
                        family residence, respectively, bears to the 
                        dollar amount limitation in effect under such 
                        section for a 1-family residence; or
                          ``(ii) the dollar amount limitation 
                        determined under such section 305(a)(2) for a 
                        residence of the applicable size;
                except that the dollar amount limitation in effect for 
                any area under this subparagraph may not be less than 
                the greater of (I) the dollar amount limitation in 
                effect under this section for the area on October 21, 
                1998, or (II) 65 percent of the dollar limitation 
                determined under such section 305(a)(2) for a residence 
                of the applicable size; and
                  ``(B) not to exceed 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.'';
          (2) in the matter after and below subparagraph (B), by 
        striking the second sentence (relating to a definition of 
        ``average closing cost'') and all that follows through ``title 
        38, United States Code''; and
          (3) by striking the last undesignated paragraph (relating to 
        counseling with respect to the responsibilities and financial 
        management involved in homeownership).

SEC. 4. EXTENSION OF MORTGAGE TERM.

   Paragraph (3) of section 203(b) of the National Housing Act (12 
U.S.C. 1709(b)(3)) is amended--
          (1) by striking ``thirty-five years'' and inserting ``forty 
        years''; and
          (2) by striking ``(or thirty years if such mortgage is not 
        approved for insurance prior to construction)''.

SEC. 5. CASH INVESTMENT REQUIREMENT.

  Paragraph (9) of section 203(b) of the National Housing Act (12 
U.S.C. 1709(b)(9) is amended by striking the paragraph designation and 
all that follows through ``Provided further, That for'' and inserting 
the following:
          ``(9) Be executed by a mortgagor who shall have paid on 
        account of the property, in cash or its equivalent, an amount, 
        if any, as the Secretary may determine based on factors 
        determined by the Secretary and commensurate with the 
        likelihood of default. For''.

SEC. 6. MORTGAGE INSURANCE PREMIUMS.

   Section 203(c) of the National Housing Act (12 U.S.C. 1709(c)) is 
amended--
          (1) in paragraph (2), in the matter preceding subparagraph 
        (A), by striking ``Notwithstanding'' and inserting ``Except as 
        provided in paragraph (3) and notwithstanding''; and
          (2) by adding at the end the following new paragraph:
  ``(3) Flexible Risk-Based Premiums.--
          ``(A) In general.--For any mortgage insured by the Secretary 
        under this title that is secured by a 1- to 4-family dwelling 
        and for which the loan application is received by the mortgagee 
        on or after October 1, 2006, the Secretary may establish a 
        mortgage insurance premium structure involving a single premium 
        payment collected prior to the insurance of the mortgage or 
        periodic payments, or both, without regard to any maximum or 
        minimum premium amounts set forth in this subsection. The rate 
        of premium for such a mortgage may vary during the mortgage 
        term as long as the basis for determining the variable rate is 
        established before the execution of the mortgage. The Secretary 
        may change a premium structure established under this 
        subparagraph but only to the extent that such change is not 
        applied to any mortgage already executed.
          ``(B) Establishment and alteration of premium structure.--A 
        premium structure shall be established or changed under 
        subparagraph (A) only by providing notice to mortgagees and to 
        the Congress, at least 30 days before the premium structure is 
        established or changed.
          ``(C) Considerations for premium structure.--When 
        establishing a premium structure under subparagraph (A) or when 
        changing such a premium structure, the Secretary shall consider 
        the following:
                  ``(i) The effect of the proposed premium structure on 
                the Secretary's ability to meet the operational goals 
                of the Mutual Mortgage Insurance Fund as provided in 
                section 202(a).
                  ``(ii) Underwriting variables.
                  ``(iii) The extent to which new pricing under the 
                proposed premium structure has potential for acceptance 
                in the private market.
                  ``(iv) The administrative capability of the Secretary 
                to administer the proposed premium structure.
                  ``(v) The effect of the proposed premium structure on 
                the Secretary's ability to maintain the availability of 
                mortgage credit and provide stability to mortgage 
                markets.''.

SEC. 7. REHABILITATION LOANS.

   Subsection (k) of section 203 of the National Housing Act (12 U.S.C. 
1709(k)) is amended--
          (1) in paragraph (1), by striking ``on'' and all that follows 
        through ``1978''; and
          (2) in paragraph (5)--
                  (A) by striking ``General Insurance Fund'' the first 
                place it appears and inserting ``Mutual Mortgage 
                Insurance Fund''; and
                  (B) in the second sentence, by striking the comma and 
                all that follows through ``General Insurance Fund''.

SEC. 8. DISCRETIONARY ACTION.

  The National Housing Act is amended--
          (1) in subsection (e) of section 202 (12 U.S.C. 1708(e))--
                  (A) in paragraph (3)(B), by striking ``section 202(e) 
                of the National Housing Act'' and inserting ``this 
                subsection''; and
                  (B) by redesignating such subsection as subsection 
                (f);
          (2) by striking paragraph (4) of section 203(s) (12 U.S.C. 
        1709(s)(4)) and inserting the following new paragraph:
          ``(4) the Secretary of Agriculture;''; and
          (3) by transferring subsection (s) of section 203 (as amended 
        by paragraph (2) of this section) to section 202, inserting 
        such subsection after subsection (d) of section 202, and 
        redesignating such subsection as subsection (e).

SEC. 9. INSURANCE OF CONDOMINIUMS.

  (a) In General.--Section 234 of the National Housing Act (12 U.S.C. 
1715y) is amended--
          (1) in subsection (c)--
                  (A) in the first sentence--
                          (i) by striking ``and'' before ``(2)''; and
                          (ii) by inserting before the period at the 
                        end the following: ``, and (3) the project has 
                        a blanket mortgage insured by the Secretary 
                        under subsection (d)''; and
                  (B) in clause (B) of the third sentence, by striking 
                ``thirty-five years'' and inserting ``forty years''; 
                and
          (2) in subsection (g), by striking ``, except that'' and all 
        that follows and inserting a period.
  (b) Definition of Mortgage.--Section 201(a) of the National Housing 
Act (12 U.S.C. 1707(a)) is amended--
          (1) in clause (1), by striking ``or'' and inserting a comma; 
        and
          (2) by inserting before the semicolon the following: ``, or 
        (c) a first mortgage given to secure the unpaid purchase price 
        of a fee interest in, or long-term leasehold interest in, a 
        one-family unit in a multifamily project, including a project 
        in which the dwelling units are attached, semi-detached, or 
        detached, and an undivided interest in the common areas and 
        facilities which serve the project''.

SEC. 10. MUTUAL MORTGAGE INSURANCE FUND.

  (a) In General.--Subsection (a) of section 202 of the National 
Housing Act (12 U.S.C. 1708(a)) is amended to read as follows:
  ``(a) Mutual Mortgage Insurance Fund.--
          ``(1) Establishment.--Subject to the provisions of the 
        Federal Credit Reform Act of 1990, there is hereby created a 
        Mutual Mortgage Insurance Fund (in this title referred to as 
        the `Fund'), which shall be used by the Secretary to carry out 
        the provisions of this title with respect to mortgages insured 
        under section 203. The Secretary may enter into commitments to 
        guarantee, and may guarantee, such insured mortgages.
          ``(2) Limit on loan guarantees.--The authority of the 
        Secretary to enter into commitments to guarantee such insured 
        mortgages shall be effective for any fiscal year only to the 
        extent that the aggregate original principal loan amount under 
        such mortgages, any part of which is guaranteed, does not 
        exceed the amount specified in appropriations Acts for such 
        fiscal year.
          ``(3) Fiduciary responsibility.--The Secretary has a 
        responsibility to ensure that the Mutual Mortgage Insurance 
        Fund remains financially sound.
          ``(4) Annual independent actuarial study.--The Secretary 
        shall provide for an independent actuarial study of the Fund to 
        be conducted annually, which shall analyze the financial 
        position of the Fund. The Secretary shall submit a report 
        annually to the Congress describing the results of such study 
        and assessing the financial status of the Fund. The report 
        shall recommend adjustments to underwriting standards, program 
        participation, or premiums, if necessary, to ensure that the 
        Fund remains financially sound.
          ``(5) Quarterly reports.--During each fiscal year, the 
        Secretary shall submit a report to the Congress for each 
        quarter, which shall specify for mortgages that are obligations 
        of the Fund--
                  ``(A) the cumulative volume of loan guarantee 
                commitments that have been made during such fiscal year 
                through the end of the quarter for which the report is 
                submitted;
                  ``(B) the types of loans insured, categorized by 
                risk;
                  ``(C) any significant changes between actual and 
                projected claim and prepayment activity;
                  ``(D) projected versus actual loss rates; and
                  ``(E) updated projections of the annual subsidy rates 
                to ensure that increases in risk to the Fund are 
                identified and mitigated by adjustments to underwriting 
                standards, program participation, or premiums, and the 
                financial soundness of the Fund is maintained.
        The first quarterly report under this paragraph shall be 
        submitted on the last day of the first quarter of fiscal year 
        2007, or upon the expiration of the 90-day period beginning on 
        the date of the enactment of the Expanding American 
        Homeownership Act of 2006, whichever is later.
          ``(6) Adjustment of premiums.--If, pursuant to the 
        independent actuarial study of the Fund required under 
        paragraph (5), the Secretary determines that the Fund is not 
        meeting the operational goals established under paragraph (8) 
        or there is a substantial probability that the Fund will not 
        maintain its established target subsidy rate, the Secretary may 
        either make programmatic adjustments under section 203 as 
        necessary to reduce the risk to the Fund, or make appropriate 
        premium adjustments.
          ``(7) Operational goals.--The operational goals for the Fund 
        are--
                  ``(A) to charge borrowers under loans that are 
                obligations of the Fund an appropriate premium for the 
                risk that such loans pose to the Fund;
                  ``(B) to minimize the default risk to the Fund and to 
                homeowners;
                  ``(C) to curtail the impact of adverse selection on 
                the Fund; and
                  ``(D) to meet the housing needs of the borrowers that 
                the single family mortgage insurance program under this 
                title is designed to serve.''.
  (b) Obligations of Fund.--The National Housing Act is amended as 
follows:
          (1) Homeownership voucher program mortgages.--In section 
        203(v) (12 U.S.C. 1709(v))--
                  (A) by striking ``Notwithstanding section 202 of this 
                title, the'' and inserting ``The''; and
                  (B) by striking ``General Insurance Fund'' the first 
                place such term appears and all that follows and 
                inserting ``Mutual Mortgage Insurance Fund.''.
          (2) Home equity conversion mortgages.--Section 255(i)(2)(A) 
        of the National Housing Act (12 U.S.C. 1715z-20(i)(2)(A)) is 
        amended by striking ``General Insurance Fund'' and inserting 
        ``Mutual Mortgage Insurance Fund''.
  (c) Conforming Amendments.--The National Housing Act is amended--
          (1) in section 205 (12 U.S.C. 1711), by striking subsections 
        (g) and (h); and
          (2) in section 519(e) (12 U.S.C. 1735c(e)), by striking 
        ``203(b)'' and all that follows through ``203(i)'' and 
        inserting ``203, except as determined by the Secretary''.

SEC. 11. HAWAIIAN HOME LANDS AND INDIAN RESERVATIONS.

  (a) Hawaiian Home Lands.--Section 247(c) of the National Housing Act 
(12 U.S.C. 1715z-12) is amended--
          (1) by striking ``General Insurance Fund established in 
        section 519'' and inserting ``Mutual Mortgage Insurance Fund''; 
        and
          (2) in the second sentence, by striking ``(1) all 
        references'' and all that follows through ``and (2)''.
  (b) Indian Reservations.--Section 248(f) of the National Housing Act 
(12 U.S.C. 1715z-13) is amended--
          (1) by striking ``General Insurance Fund'' the first place it 
        appears through ``519'' and inserting ``Mutual Mortgage 
        Insurance Fund''; and
          (2) in the second sentence, by striking ``(1) all 
        references'' and all that follows through ``and (2)''.

SEC. 12. CONFORMING AND TECHNICAL AMENDMENTS.

  (a) Repeals.--The following provisions of the National Housing Act 
are repealed:
          (1) Subsection (i) of section 203 (12 U.S.C. 1709(i)).
          (2) Subsection (o) of section 203 (12 U.S.C. 1709(o)).
          (3) Subsection (p) of section 203 (12 U.S.C. 1709(p)).
          (4) Subsection (q) of section 203 (12 U.S.C. 1709(q)).
          (5) Section 222 (12 U.S.C. 1715m).
          (6) Section 237 (12 U.S.C. 1715z-2).
          (7) Section 245 (12 U.S.C. 1715z-10).
  (b) Definition of Area.--Section 203(u)(2)(A) of the National Housing 
Act (12 U.S.C. 1709(u)(2)(A)) is amended by striking ``shall'' and all 
that follows and inserting ``means a metropolitan statistical area as 
established by the Office of Management and Budget;''.
  (c) Definition of State.--Section 201(d) of the National Housing Act 
(12 U.S.C. 1707(d)) is amended by striking ``the Trust Territory of the 
Pacific Islands'' and inserting ``the Commonwealth of the Northern 
Mariana Islands''.

SEC. 13. HOME EQUITY CONVERSION MORTGAGES.

  (a) In General.--Section 255 of the National Housing Act (12 U.S.C. 
1715z-20) is amended--
          (1) in subsection (g)--
                  (A) by striking the first sentence; and
                  (B) by striking ``established under section 
                203(b)(2)'' and all that follows through ``located'' 
                and inserting ``limitation established under section 
                305(a)(2) of the Federal Home Loan Mortgage Corporation 
                Act for a 1-family residence'';
          (2) in subsection (i)(1)(C), by striking ``limitations'' and 
        inserting ``limitation''; and
          (3) by adding at the end the following new subsection:
  ``(n) Authority to Insure Home Purchase Mortgage.--
          ``(1) In general.--Notwithstanding any other provision in 
        this section, the Secretary may insure, upon application by a 
        mortgagee, a home equity conversion mortgage upon such terms 
        and conditions as the Secretary may prescribe, when the primary 
        purpose of the home equity conversion mortgage is to enable an 
        elderly mortgagor to purchase a 1-to 4 family dwelling in which 
        the mortgagor will occupy or occupies one of the units.
          ``(2) Limitation on principal obligation.--A home equity 
        conversion mortgage insured pursuant to paragraph (1) shall 
        involve a principal obligation that does not exceed the dollar 
        amount limitation determined under section 305(a)(2) of the 
        Federal Home Loan Mortgage Corporation Act for a residence of 
        the applicable size.''.
  (b) Study Regarding Mortgage Insurance Premiums.--The Secretary of 
Housing and Urban Development shall conduct a study regarding mortgage 
insurance premiums charged under the program under section 255 of the 
National Housing Act (12 U.S.C. 1715z-20) for insurance of home equity 
conversion mortgages to analyze and determine--
          (1) the effects of reducing the amounts of such premiums from 
        the amounts charged as of the date of the enactment of this Act 
        on--
                  (A) costs to mortgagors; and
                  (B) the financial soundness of the program; and
          (2) the feasibility and effectiveness of exempting, from all 
        the requirements under the program regarding payment of 
        mortgage insurance premiums (including both up-front or annual 
        mortgage insurance premiums under section 203(c)(2) of such 
        Act), any mortgage insured under the program under which part 
        or all of the amount of future payments made to the homeowner 
        are used for costs of a long-term care insurance contract 
        covering the mortgagor or members of the household residing in 
        the mortgaged property.
Not later than the expiration of the 12-month period beginning on the 
date of the enactment of this Act, the Secretary shall submit a report 
to the Congress setting forth the results and conclusions of the study.

SEC. 14. CONFORMING LOAN LIMIT IN DISASTER AREAS.

  Section 203(h) of the National Housing Act (12 U.S.C. 1709) is 
amended--
          (1) by inserting after ``property'' the following: ``plus any 
        initial service charges, appraisal, inspection and other fees 
        in connection with the mortgage as approved by the 
        Secretary,'';
          (2) by striking the second sentence (as added by chapter 7 of 
        the Emergency Supplemental Appropriations Act of 1994 (Public 
        Law 103-211; 108 Stat. 12)); and
          (3) by adding at the end the following new sentence: ``In any 
        case in which the single family residence to be insured under 
        this subsection is within a jurisdiction in which the President 
        has declared a major disaster to have occurred, the Secretary 
        is authorized, for a temporary period not to exceed 36 months 
        from the date of such Presidential declaration, to enter into 
        agreements to insure a mortgage which involves a principal 
        obligation of up to 100 percent of the dollar limitation 
        determined under section 305(a)(2) of the Federal Home Loan 
        Mortgage Corporation Act for a single family residence, and 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.''.

SEC. 15. PARTICIPATION OF MORTGAGE BROKERS AND CORRESPONDENT LENDERS.

  (a) Definitions.--
          (1) In general.--Section 201 of the National Housing Act (12 
        U.S.C. 1707) is amended--
                  (A) by striking ``As used in section 203 of this 
                title--'' and inserting ``As used in this title and for 
                purposes of participation in insurance programs under 
                this title, except as specifically provided otherwise, 
                the following definitions shall apply:'';
                  (B) by striking subsection (b) and inserting the 
                following:
          ``(2) The term `mortgagee' means any of the following 
        entities, and its successors and assigns, to the extent such 
        entity is approved by the Secretary:
                  ``(A) A lender or correspondent lender, who--
                          ``(i) makes, underwrites, and services 
                        mortgages;
                          ``(ii) submits to the Secretary such 
                        financial audits performed in accordance with 
                        the standards for financial audits of the 
                        Government Auditing Standards issued by the 
                        Comptroller of the United States;
                          ``(iii) meet the minimum net worth 
                        requirement that the Secretary shall establish; 
                        and
                          ``(iv) complies with such other requirements 
                        as the Secretary may establish.
                  ``(B) A correspondent lender who--
                          ``(i) closes a mortgage in its name but does 
                        not underwrite or service the mortgage;
                          ``(ii) posts a surety bond, in lieu of any 
                        requirement to provide audited financial 
                        statements or meet a minimum net worth 
                        requirement, in--
                                  ``(I) a form satisfactory to the 
                                Secretary; and
                                  ``(II) an amount of $75,000, as such 
                                amount is adjusted annually by the 
                                Secretary (as determined under 
                                regulations of the Secretary) by the 
                                change for such year in the Consumer 
                                Price Index for All Urban Consumers 
                                published monthly by the Bureau of 
                                Labor Statistics of the Department of 
                                Labor; and
                          ``(iii) complies with such other requirements 
                        as the Secretary may establish.
                  ``(C) A mortgage broker who--
                          ``(i) closes the mortgage in the name of the 
                        lender and does not make, underwrite, or 
                        service the mortgage;
                          ``(ii) is licensed, under the laws of the 
                        State in which the property that is subject to 
                        the mortgage is located, to act as a mortgage 
                        broker in such State;
                          ``(iii) posts a surety bond in accordance 
                        with the requirements of subparagraph (B)(ii); 
                        and
                          ``(iv) complies with such other requirements 
                        as the Secretary may establish.
          ``(3) The term `mortgagor' includes the original borrower 
        under a mortgage and the successors and assigns of the original 
        borrower.'';
                  (C) in subsection (a), by redesignating clauses (1) 
                and (2) as clauses (A) and (B) respectively; and
                  (D) by redesignating subsections (a), (c), (d), (e), 
                and (f) as paragraphs (1), (4), (5), (6), and (7), 
                respectively, and realigning such paragraphs two ems 
                from the left margin.
          (2) Mortgagee review.--Section 202(c)(7) of the National 
        Housing Act (12 U.S.C. 1708(c)(7)) is amended--
                  (A) in subparagraph (A), by inserting ``, as defined 
                in section 201,'' after ``mortgagee'';
                  (B) by striking subparagraph (B); and
                  (C) by redesignating subparagraphs (C) and (D) as 
                subparagraphs (B) and (C), respectively.
          (3) Multifamily rental housing insurance.--Section 207(a)(2) 
        of the National Housing Act (12 U.S.C. 1713(a)(2)) is amended 
        by striking ``means the original lender under a mortgage, and 
        its successors and assigns, and'' and inserting ``has the 
        meaning given such term in section 201, except that such term 
        also''.
          (4) War housing insurance.--Section 601(b) of the National 
        Housing Act (12 U.S.C. 1736(b)) is amended by striking 
        ``includes the original lender under a mortgage, and his 
        successors and assigns approved by the Secretary'' and 
        inserting ``has the meaning given such term in section 201''.
          (5) Armed services housing mortgage insurance.--Section 
        801(b) of the National Housing Act (12 U.S.C. 1748(b)) is 
        amended by striking ``includes the original lender under a 
        mortgage, and his successors and assigns approved by the 
        Secretary'' and inserting ``has the meaning given such term in 
        section 201''.
          (6) Group practice facilities mortgage insurance.--Section 
        1106(8) of the National Housing Act (12 U.S.C. 1749aaa-5(8)) is 
        amended by striking ``means the original lender under a 
        mortgage, and his or its successors and assigns, and'' and 
        inserting ``has the meaning given such term in section 201, 
        except that such term also''.
  (b) Eligibility for Insurance.--
          (1) Title i.--Paragraph (1) of section 8(b) of the National 
        Housing Act (12 U.S.C. 1706c(b)(1)) is amended--
                  (A) by striking ``, and be held by,''; and
                  (B) by striking ``as responsible and able to service 
                the mortgage properly''.
          (2) Single family housing mortgage insurance.--Paragraph (1) 
        of section 203(b) of the National Housing Act (12 U.S.C. 
        1709(b)(1)) is amended
                  (A) by striking ``, and be held by,''; and
                  (B) by striking ``as responsible and able to service 
                the mortgage properly''.
          (3) Section 221 mortgage insurance.-- Paragraph (1) of 
        section 221(d) of the National Housing Act (12 U.S.C. 
        1715l(d)(1)) is amended--
                  (A) by striking `` and be held by''; and
                  (B) by striking ``as responsible and able to service 
                the mortgage properly''.
          (4) Home equity conversion mortgage insurance.--Paragraph (1) 
        of section 255(d) of the National Housing Act (12 U.S.C. 1715z-
        20(d)(1)) is amended by striking ``as responsible and able to 
        service the mortgage properly''.
          (5) War housing mortgage insurance.--Paragraph (1) of section 
        603(b) of the National Housing Act (12 U.S.C. 1738(b)(1)) is 
        amended--
                  (A) by striking ``, and be held by,''; and
                  (B) by striking ``as responsible and able to service 
                the mortgage properly''.
          (6) War housing mortgage insurance for large-scale housing 
        projects.--Paragraph (1) of section 611(b) of the National 
        Housing Act (12 U.S.C. 1746(b)(1)) is amended--
                  (A) by striking `` and be held by''; and
                  (B) by striking ``as responsible and able to service 
                the mortgage properly''.
          (7) Group practice facility mortgage insurance.--Section 
        1101(b)(2) of the National Housing Act (12 U.S.C. 
        1749aaa(b)(2)) is amended--
                  (A) by striking `` and held by''; and
                  (B) by striking ``as responsible and able to service 
                the mortgage properly''.
          (8) National defense housing insurance.--Paragraph (1) of 
        section 903(b) of the National Housing Act (12 U.S.C. 
        1750b(b)(1)) is amended--
                  (A) by striking ``, and be held by,''; and
                  (B) by striking ``as responsible and able to service 
                the mortgage properly''.

SEC. 16. SENSE OF CONGRESS REGARDING TECHNOLOGY FOR FINANCIAL SYSTEMS.

  (a) Congressional Findings.--The Congress finds the following:
          (1) The Government Accountability Office has cited the FHA 
        single family housing mortgage insurance program as a ``high-
        risk'' program, with a primary reason being non-integrated and 
        out-dated financial management systems.
          (2) The ``Audit of the Federal Housing Administration's 
        Financial Statements for Fiscal Years 2004 and 2003'', 
        conducted by the Inspector General of the Department of Housing 
        and Urban Development reported as a material weakness that 
        ``HUD/FHA's automated data processing [ADP] system environment 
        must be enhanced to more effectively support FHA's business and 
        budget processes''.
          (3) Existing technology systems for the FHA program have not 
        been updated to meet the latest standards of the Mortgage 
        Industry Standards Maintenance Organization and have numerous 
        deficiencies that lenders have outlined.
          (4) Improvements to technology used in the FHA program will--
                  (A) allow the FHA program to improve the management 
                of the FHA portfolio, garner greater efficiencies in 
                its operations, and lower costs across the program;
                  (B) result in efficiencies and lower costs for 
                lenders participating in the program, allowing them to 
                better use the FHA products in extending homeownership 
                opportunities to higher credit risk or lower-income 
                families, in a sound manner
          (5) The Mutual Mortgage Insurance Fund operates without cost 
        to the taxpayers and generates revenues for the Federal 
        Government.
  (b) Sense of Congress.--It is the sense of the Congress that--
          (1) the Secretary of Housing and Urban Development should use 
        a portion of the funds received from premiums paid for FHA 
        single family housing mortgage insurance that are in excess of 
        the amounts paid out in claims to substantially increase the 
        funding for technology used in such FHA program;
          (2) the goal of this investment should be to bring the 
        technology used in such FHA program to the level and 
        sophistication of the technology used in the conventional 
        mortgage lending market, or to exceed such level; and
          (3) the Secretary of Housing and Urban Development should 
        report to the Congress not later than 180 days after the date 
        of the enactment of this Act regarding the progress the 
        Department is making toward such goal and if progress is not 
        sufficient, the resources needed to make greater progress.

SEC. 17. SAVINGS PROVISION.

  Any mortgage insured under title II of the National Housing Act 
before the date of enactment of this title shall continue to be 
governed by the laws, regulations, orders, and terms and conditions to 
which it was subject on the day before the date of the enactment of 
this Act.

SEC. 18. IMPLEMENTATION.

   The Secretary of Housing and Urban Development shall by notice 
establish any additional requirements that may be necessary to 
immediately carry out the provisions of this title. The notice shall 
take effect upon issuance.

                          Purpose and Summary

    H.R. 5121, the Expanding American Homeownership Act of 
2006, proposes comprehensive reform for the Federal Housing 
Administration's (FHA) single-family mortgage insurance 
activities. The legislation introduces an array of products to 
more fairly price FHA's guarantee to individual borrowers and 
will allow FHA to base each borrower's mortgage insurance 
premiums upon the risk that the borrower poses to the FHA 
Mortgage Insurance Fund.

                  Background and Need for Legislation

    Since its inception in 1934, FHA has played an innovative 
role in financing homeownership and affordable housing 
opportunities for all Americans. Over the past eight years 
alone, FHA has financed nearly eight million homes and over 
754,000 units of affordable rental housing. The U.S. mortgage 
market has changed dramatically in recent years, creating what 
is today the world's most sophisticated real estate finance 
system. This system has led to the highest rate of 
homeownership in U.S. history and to the efficient production 
of thousands of units of affordable rental housing each year.
    Despite record levels of homeownership, FHA continues to 
face challenges in effectively managing its resources and 
programs in this quickly changing mortgage market. These 
challenges have already diminished FHA's ability to serve 
families not adequately addressed by the conventional mortgage 
market. For example, while the prime market remained relatively 
constant, the non-prime market between 2003 and 2005 grew from 
$118 billion to $650 billion in mortgages, while FHA went from 
insuring 9.2 to 4.1 percent of the nation's mortgages.
    Unanswered, these issues will leave the families served by 
FHA programs with fewer alternatives for homeownership or 
affordable rental housing opportunities. Without a viable FHA 
alternative, many homebuyers turn to high-cost financing and 
nontraditional loan products to afford their first homes. While 
low initial monthly payments seem prudent in the short-run, the 
reset rates on some interest-only loans are substantial and 
many families could be unable to keep pace when their payments 
increase.

                 FHA RELEVANCE IN 21ST CENTURY MARKETS

    FHA is still relevant in today's mortgage markets. FHA is 
designed to give a choice to homebuyers who can't qualify for 
prime financing or are otherwise underserved by the private 
sector. By operating through a private distribution network, 
FHA efficiently reaches families in need of safe and affordable 
home financing. Further, FHA insurance protects lenders against 
loss, enabling these private sector partners to offer market-
rate mortgages to creditworthy homebuyers who would otherwise 
remain underserved and be forced into higher-priced and often 
predatory products. FHA provides a substantial benefit to 
families, communities, and the entire national economy.
    The Committee recognizes some concerns that Federal or 
otherwise public agencies should not compete or provide 
duplicative services already served by the private sector. 
Since FHA's inception in 1934, the agency has been at the 
forefront of standardizing the mortgage financial markets, 
particularly for low- and moderate-income borrowers. While the 
conventional markets make historical progress in meeting 
affordable homeownership needs of population sectors 
traditionally underserved, the Committee believes that the 
public and private sectors could do more and do it better.
    Just as FHA re-energized the conventional markets during 
the 1930's depression or as recently as the oil-patch crisis in 
the South-western states in the 1980s, the 21st century need 
evolves around the explosion of mortgage loans characterized as 
predatory lending. H.R. 5121 would begin the process of creating 
standards and expanded capitol access to underserved populations paying 
significantly higher interest rates, fees and settlement costs.
    The Committee is clear to distinguish a difference between 
subprime lending, which is necessary and critical for non-
traditional loans/borrowers and predatory lending, which is 
designed to take advantage of vulnerable Americans pursuing the 
American dream. Among other things, H.R. 5121 would allow FHA 
to provide alternative access as well as standardization of a 
market niche destined to follow the agency's example.
    Moreover, the Committee notes that the Federal government 
will always have a need for an agency providing the type of 
services symbolized by FHA. While the agency only has a market 
share of approximately three to four percent, elimination of 
FHA would be disastrous when capitol and mortgage financial 
crisis emerge, such as in the 1980s. It would be impossible to 
recreate an agency to respond rapidly to housing and 
homeownership crisis that could emerge in the future.
    H.R. 5121 will allow FHA to fulfill its original mission 
when similar circumstances existed. In 1934, interest-only and 
balloon payments were prevalent; thus FHA was established to 
give the private sector avenues to provide long-term, fixed-
rate financing.
    Today, FHA continues to serve its original purpose by 
giving low- to moderate-income homebuyers a safer, more 
affordable financing option for homeownership.

                   ZERO DOWNPAYMENT MORTGAGE PRODUCTS

    H.R. 5121, among other innovations, will provide FHA the 
flexibility to insure mortgages where the borrower has no 
downpayment. The Committee held hearings on affordable housing 
and found that in some circumstances, there were creditworthy 
borrowers who posed little to no risk in defaulting on their 
monthly mortgage obligation, despite not having a downpayment 
at the time of the real estate settlement. Examples include 
police officers, teachers, and other working families with 
stable employment but because of the high living costs, were 
unable to save cash for a downpayment. However, homeownership, 
in a majority of cases would be less costly than paying rent 
and also serve a two-fold public policy purpose of stabilizing 
communities and neighborhoods, and providing another tool to 
allow working, creditworthy families an opportunity to pursue 
the American dream. The Committee recognized that zero 
downpayments should be part of the flexibility FHA would need 
to be relevant in the 21st century.

                      REFORM ASPECTS OF H.R. 5121

    Under H.R. 5121, the Expanding American Homeownership Act 
of 2006, FHA would determine the borrower's mortgage insurance 
premium based on their credit history, loan-to-value ratio, 
debt-to-income ratio, as well as FHA's historical experience 
with similar borrowers. This change will decrease premiums for 
many of FHA's traditional borrowers, thereby increasing their 
access to homeownership. It would also allow FHA to reach 
potential homebuyers who--for various reasons--do not currently 
qualify for an FHA loan product.
    In addition, the bill would eliminate the complicated 
downpayment calculation and the traditional upfront cash 
requirement that have been the hallmark of FHA for years. The 
downpayment remains the major barrier to homeownership in this 
country. This bill would permit borrowers to choose how much 
they want to invest in the purchase of their home, thereby 
allowing consumer choice and flexibility on the type of 
downpayment and the level of upfront and annual mortgage 
insurance premiums.
    H.R. 5121 would also increase FHA's loan limits. In many 
areas of the country, the existing FHA loan limits are lower 
than the cost of new construction. In other areas, FHA has 
simply been priced out of the market. For example, in 1999, FHA 
insured 127,000 loans in California; in 2005, only 5,000 loans 
were FHA-insured.
    H.R. 5121 would give FHA the needed flexibility to support 
sound lending in the 21st Century. Modernizing FHA will improve 
competition in the prime home loan mortgage industry and 
effectively assist the industry in combating abusive and/or 
discriminatory lending practices. Because of today's ``one size 
fits all'' FHA premium, lower risk borrowers subsidize those at 
higher risk. Under H.R. 5121, FHA will balance the borrower's 
needs, financial profile, and mortgage terms with an 
appropriate premium. For example, borrowers will be able 
tochoose a down payment amount, mortgage period, or premium options to 
fit their long-term goals. Each borrower will pay his/her own way with 
a reasonably priced premium.
    Charging premiums commensurate with risk allows sound 
pricing and portfolio diversity to sustain the financial 
strength of the FHA fund. With these changes, FHA can continue 
to serve hardworking, creditworthy Americans.
    The legislation would also allow 40-year mortgage insurance 
products that could help address affordability problems, 
particularly in high-cost areas. Just as FHA pioneered the 30-
year fixed-rate mortgage, the agency could jumpstart efforts by 
the private sector to address affordability issues.
    Finally, H.R. 5121 would lift the statutory maximum number 
of FHA reverse mortgage. Under the 2005 Emergency Supplemental 
legislation, Congress approved lifting these caps from 150,000 
to 250,000. Similarly, the House of Representatives approved on 
June 23, 2005, H.R. 2892, the ``Reverse Mortgages to Help 
America's Seniors Act'' by unanimous voice vote. This provision 
would prevent the possibility of future program disruptions 
that could be detrimental to seniors pursuing loan products 
that capitalize on the equity in their homes at a time when 
they have few cash resources.

                           OUTSTANDING ISSUES

    During the markup of H.R. 5121, the Committee's Ranking 
Member brought up concerns regarding FHA's ability to raise its 
upfront mortgage insurance premium and its annual premium. 
Cong. Barney Frank expressed reservations that a great majority 
of low-income persons would be unduly penalized with high 
upfront and annual premiums under H.R. 5121. The Chair pledged 
to work with Cong. Frank toward finding an accommodation prior 
to floor consideration.
    Cong. Scott Garrett offered an amendment that would place 
performance triggers on the FHA program in the event of a 
significant increase in default rates. Cong. Garrett expressed 
concern that in the event of higher defaults, higher fees and 
upfront premiums could be assessed thereby creating a scenario 
that fewer people use the FHA program. The amendment was 
withdrawn with a pledge from the Chair to work on this issue 
prior to floor consideration.

                                Hearings

    The Subcommittee on Housing and Community Opportunity held 
a hearing entitled, ``Transforming the Federal Housing 
Administration for the 21st Century'' on April 5, 2006. 
Witnesses included the Honorable Brian Montgomery, HUD's FHA 
Commissioner, Stella Adams of the National Community 
Reinvestment Coalition, Gerald Howard of the National 
Association of Home Builders, Regina Lowrie of the Mortgage 
Bankers Association of America, and A.W. Pickel of the National 
Association of Mortgage Brokers.

                        Committee Consideration

    The Committee on Financial Services met in open session on 
May 24, 2006, and ordered reported H.R. 5121, the ``Expanding 
American Homeownership Act'' 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 to the House with a favorable recommendation 
was agreed to by a voice vote. During the consideration of the 
bill, the following amendments were considered:
    An amendment by Mr. Ney, No. 1, making various technical 
and substantive changes, was agreed to by a voice vote.
    An amendment by Mr. Garrett, No. 2, rolling back program 
expansion in event of increased defaults, was withdrawn.

                    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:
    The objective of this legislation is to modernize FHA. The 
goal of H.R. 5121 is to give FHA the ability to serve more 
families and create more homeowners, thereby narrowing the 
minority homeownership gap.

   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 section 402 of 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, June 14, 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. 5121, the 
Expanding American Homeownership 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. 5121--Expanding American Homeownership Act of 2006

    Summary: H.R. 5121 would amend the National Housing Act to 
provide the Federal Housing Administration (FHA) with new 
authority to offer guarantees for various types of loans within 
a new pricing structure. The bill is aimed at updating FHA's 
business operations so that it could more effectively manage 
its credit risks and expand homeownership opportunities.
    CBO estimates that implementing H.R. 5121 would increase 
offsetting collections (as a credit against discretionary 
spending) by $247 million in 2007 and $2.3 billion over the 
2007-2011 period, assuming enactment of appropriation laws 
necessary to implement the FHA programs. Such savings would 
stem from increasing the number of homeowners who could obtain 
loan insurance under FHA's Home Equity Conversion Mortgage 
(HECM) program and under FHA's single-family loan insurance 
program. Offsetting collections are generated by those programs 
because the fees paid by borrowers generally exceed the cost of 
expected defaults. Enacting the bill would not affect direct 
spending or revenues.
    H.R. 5121 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 H.R. 5121 is shown in the following table. 
The cost of this legislation falls within budget function 370 
(mortgage and housing credit). For this estimate, we assume the 
bill will be enacted near the end of fiscal year 2006.

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

FHA and GNMA spending under current law\1\:
    Estimated authorization level.......................     -1,296     -472     -327     -331     -344     -353
    Estimated outlays...................................     -1,296     -472     -327     -331     -344     -353
Proposed changes:
    Change to HECM loan program:
        Estimated authorization level...................          0     -230     -430     -470     -510     -550
        Estimated outlays...............................          0     -230     -430     -470     -510     -550
    Increasing loan limits for single-family guarantees:
        Estimated authorization level...................          0      -11      -13      -14      -16      -16
        Estimated outlays...............................          0      -11      -13      -14      -16      -16
    GNMA offsetting collections:
        Estimated authorization level...................          0       -6       -6       -7       -8       -8
        Estimated outlays...............................          0       -6       -6       -7       -8       -8
        Total changes:
            Estimated authorization level...............          0     -247     -449     -491     -534     -574
            Estimated outlays...........................          0     -247     -449     -491     -534     -574
    Total FHA and GNMA spending under H.R. 5121:
        Estimated authorization level...................     -1,296     -719     -776     -822     -878     -927
        Estimated outlays...............................     -1,296     -719     -776     -822     -878     -927
----------------------------------------------------------------------------------------------------------------
\1\The figures for 2006 are CBO's current estimates of budget authority and outlays for the FHA's Single-Family
  and HECM programs and for GNMA's MBS program under the enacted appropriation levels for this year. The 2007-
  2011 levels are CBO's baseline estimates of the amount of offsetting collections generated by these programs.
NOTE: GNMA = Government National Mortgage Association; HECM = Home Equity Mortgage Insurance; MBS = Mortgage-
  Backed Securities.

Basis of estimate

    The budgetary impact of this legislation would stem from 
additional offsetting collections generated by expanding the 
HECM loan program, raising the loan limits for FHA's single-
family program, and increasing activity for the Government 
National Mortgage Association (GNMA). CBO expects other 
provisions of the bill would have no significant budgetary 
impact over the next five years. The major provision of the 
bill are discussed below.

Expanding the HECM Loan Insurance Program

    HECM loans are considered to be ``reverse mortgages'' 
because they enable homeowners who are at least 62 years of age 
to withdraw some of the equity in their home in the form of 
monthly payments, in a lump sum, or through a line of credit. 
Under current law, FHA is permitted to guarantee up to a 
cumulative total of 250,000 such loans, and CBO expects that 
FHA will reach that cap in 2007. Loan size is tied to loan 
limits that vary by geographic region, and such loans cannot be 
used to purchase another home. Enacting this legislation would 
remove the statutory limitation on the number of loans that 
could be guaranteed, set a single nationwide loan limit for the 
HECM program tied to the conforming loan amount, and allow 
borrowers to use HECM loans to purchase a new home. Conforming 
loans have terms and conditions that follow the guidelines set 
forth by the Government Sponsored Enterprises (GSEs). 
Implementation of the HECM program, like all of FHA's insurance 
programs, is contingent on the enactment of appropriation laws 
that provide annual loan commitment authority. The estimated 
budgetary impact of this proposal is tied to the demand for 
HECM loans and their subsidy cost.
    Demand for HECM Loans. According to the National Reverse 
Mortgage Lenders Association (NRMLA) and other industry 
experts, the HECM program has risen in popularity in recent 
years. As more consumers are becoming aware of the product, 
more households are becoming eligible for the program (e.g., 
currently there are over 17 million households with owners aged 
65 or older, according to census data), and more seniors view 
the product as an alternative approach to financing home-
improvement projects, medical costs, and other needs. In 
addition, sources in the mortgage industry have observed an 
increasing demand among seniors for new housing within senior 
communities. The number of HECM loans insured by FHA more than 
doubled from 2003 to 2005 (18,000 loans were insured in 2003, 
compared with 43,000 loans in 2005, and as of April 2006 a 
cumulative total of about 200,000 loans have been insured). 
Moreover, there is relatively little private competition for 
these loans, enabling FHA to dominant the marketplace. The 
NRMLA estimates that FHA's current market share of reverse 
mortgages is about 90 percent.
    Based on information from FHA, NRMLA, and other industry 
experts, CBO estimates that these legislative changes would 
result in a HECM loan product that would be more attractive to 
borrowers and more easily marketed by lenders, resulting in 
increased demand for HECM loans. The market for HECM loans 
appears to be very robust and with limited competition,the 
potential for FHA to insure more than 100,000 loans annually appears 
likely. Whether the number of guarantees could exceed this level would 
depend on FHA's ability to administer and manage the program in an 
efficient manner on a continued basis. CBO assumes that about 20,000 
loans (with a face value of $5 billion) could be insured during the 
first quarter of fiscal year 2007 under the current statutory cap on 
the number of such loans that FHA can insure. We estimate that FHA 
could guarantee an additional 80,000 loans (with a face value of about 
$20 billion) in 2007 as a result of the changes proposed in this 
legislation. In subsequent years, assuming demand for this product 
continues to grow and FHA maintains its market share, CBO estimates 
that 140,000 to 160,000 such loans (with a face value of $35 billion to 
$45 billion) could be insured annually.
    Subsidy Cost. Under current law, FHA guarantees of HECM 
loans result in net offsetting collections to the federal 
government because guarantee fees for those mortgages more than 
offset the costs of expected defaults, resulting in net 
collections from the loan guarantee program. For 2007, the 
Administration's subsidy estimate is -2.8 percent. Under the 
expanded program authorized by H.R. 5121, CBO estimates that 
the subsidy rate for the HECM loans would be -1.2 percent. That 
reduction from the estimated rate for 2007 is due to the 
increased risk FHA would experience under the proposed 
nationwide loan limitation. With larger loan sizes, the 
``equity cushion'' (i.e., the difference between the home's 
value and the potential cost of a claim payment) would 
decrease, leading to potentially more costly claims for FHA.
    This estimated subsidy rate of -1.2 percent assumes that 
the HECM loan program would not be subject to the risk-based 
pricing structure authorized by the bill and described below. 
CBO assumes that FHA would continue to charge fixed, up-front 
and annual fees for all HECM borrowers, regardless of any 
specific evaluation of their individual risk of default. CBO 
estimates that enacting this legislation would result in 
additional offsetting collections of $230 million in 2007 and 
$2.2 billion over the 2007-2010 period. Such offsetting 
collections are contingent on enactment of appropriation bills, 
which establish the authority to make such loan guarantees by 
specifying annual loan commitment levels.

Raising Loan Limits for the Single-Family Program

    Proposed Changes. Section 3 would raise FHA loan limits 
(i.e., the dollar amount of mortgages that FHA can insure) for 
its single-family program from 87 percent of the conforming 
loan amount--up to 100 percent of the conforming loan limit in 
certain geographic regions where the cost of housing is very 
high. Effectively, this would be a change from loans of 
$362,790 today to loans of $417,000. In less expensive markets, 
the limit would be raised from 48 percent of the conforming 
loan limit for a change from loans of $200,160 today to loans 
of $271,050.
    Estimated Savings. CBO estimates that increasing the loan 
limits would increase offsetting collections (as a credit 
against discretionary spending) by about $11 million in 2007 
and $70 million over the 2007-2011 period, assuming enactment 
of appropriations laws necessary to implement FHA's single-
family insurance program. We expect that the subsidy rate for 
these loans obtaining insurance under the new limitations would 
be close to the estimated rate of -0.37 percent for 2007, and 
that demand for FHA's loan guarantees would increase by about 
10 percent annually after the marketplace has fully adapted to 
the changes in limits.
    Increase in Demand. The last significant change in FHA's 
loan limitation occurred in October 1998 when the limit for 
high cost areas was raised from 75 percent to 87 percent of the 
conforming loan amount; subsequently, the total volume of loans 
guaranteed by FHA over the next year increased by about 25 
percent. While a portion of this increase could be attributed 
to a surge in refinancing of existing mortgages and increases 
in house prices, FHA estimates that about 6 percent to 8 
percent of the increase resulted from borrowers obtaining FHA-
insured loans that were higher in value. Based on information 
from FHA and several industry associations, CBO expects that 
the increase in the volume of loans guaranteed by FHA under the 
proposed limits would be slightly higher.
    An estimated 7 percent to 9 percent increase would amount 
to about $4 billion in loan guarantees and assumes that the 
estimated change in volume would stem mostly from increasing 
the limit in the less expensive housing markets. In lower-cost 
areas, FHA has a stronger presence; increasing the limits in 
those areas would build upon FHA's existing market penetration 
in those areas. Moreover, according to the Mortgage Brokers 
Association, FHA's loan limits are not sufficient to cover the 
cost of new construction in many areas of the country, limiting 
options for the type of loans homebuyers can obtain in those 
areas. The National Association of Homebuilders reports that 
the median house price for a new home in 2005 was about 
$240,000, an amount that would fall within the proposed limits 
of $271,050 for the lower-cost areas.
    The proposed increase in loan limit for the higher-cost 
areas would, in contrast, not have a significant impact in such 
high-cost areas because the median-house price in many of those 
areas already exceeds the proposed ceiling of $417,000. For 
example, according to information published by the National 
Association of Realtors, the median-house price in most parts 
of California exceeds $530,000. In addition, FHA's market share 
in high-cost areas is very low. According to the Realtors 
group, in 2004, FHA's market share in California was 0.37 
percent. Thus, CBO expects that in certain high-cost markets 
where FHA's presence is minimal, there would probably be no 
significant impact on FHA over the next five years.
    GNMA Savings. Changes in FHA loan limits also would 
generate savings for GNMA. 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. Because the value of the fees 
collected are estimated to exceed the cost of loan defaults in 
each year, the GNMA Mortgage-Backed Securities (MBS) program is 
estimated to have a subsidy rate of -0.21 percent in 2007, 
resulting in the net collection of receipts to the federal 
government.
    Because most FHA single-family loan guarantees are included 
in GNMA's MBS program, CBO estimates that raising the loan 
limit would result in additional collections to GNMA of about 
$35 million over the 2007-2011 period. Like FHA, GNMA requires 
appropriation action to establish its dollar limitation for the 
securities program. (HECM loans are not included in GNMA's MBS 
program.)

Other Amendments to FHA's Programs

    H.R. 5121 would make other changes to FHA's business 
operations; however, CBO does not expect these changes would 
have a significant budgetary impact over the next five years. 
These provisions are discussed below.
    Risk-based Pricing and Flexible Downpayment Requirements. 
Once considered an innovator and dominant player in housing 
finance, especially for those borrowers who were not adequately 
served by the private market, FHA is no longer a major 
participant in the mortgage insurance industry. According to 
FHA, its market share has fallen from about 8 percent in 1999 
to about 2 percent in 2005. Since 2002, FHA has experienced a 
sharp decline in the volume of single-family loans it 
guarantees, with total guarantees falling 60 percent from $147 
billion in 2003 to $58 billion in 2005.
    Moreover, the amount of offsetting collections generated by 
single-family loan guarantees has decreased significantly ($3.7 
billion recorded in 2003 and $169 million estimated by the 
Administration for 2007) because the subsidy rate for the 
guarantees dropped from -2.53 in 2003 to an estimated -0.37 for 
2007. The primary reasons for the waning popularity of FHA's 
guarantees and its decreasing offsetting collections are the 
perception among lenders and other industry participants of 
FHA's services as inefficient and overly cumbersome, its flat 
pricing structure, and the fact that FHA guarantees a limited 
range of loan products compared to private insurers, who are 
increasingly insuring low or no-downpayment loans and other 
types of alternative loan products.
    Currently, FHA has a flat premium structure where all 
borrowers pay the same 1.5 percent up-front fee and 0.5 percent 
annual fee, regardless of the borrower's individual risk of 
default. This premium structure favors the riskiest borrowers 
because they are usually charged premiums that are too low to 
cover their expected defaults. In comparison, less risky 
borrowers are usually charged fees that are too high; 
consequently, many such borrowers seek competitively priced 
products from the private market, which charges borrowers fees 
that are commensurate with their credit profiles, otherwise 
known as risk-based pricing. This tradeoff between high- and 
low-risk borrowers results in an FHA portfolio that has a high 
concentration of the highest risk borrowers, limiting the 
amount of offsetting collection generated.
    Proposed Changes. Under this legislation, FHA would have 
the authority to match the fees it charges with the borrowers' 
risk of default, and to offer guarantees for loans with little 
or no downpayment. Based on information from FHA, CBO assumes 
the FHA would initially charge up-front fees ranging from 0.5 
percent (for the lowest-risk borrowers) to almost 3 percent 
(for the highest-risk borrowers). Annual fees are expected to 
range from .5 percent to .75 percent. FHA estimates that the 
blended subsidy rate for all of the guarantees would be about 
-0.9 percent beginning in 2007 (compared to -0.37 percent 
estimated for 2007 under current law). In addition, FHA 
estimates that by offering guarantees for low down-payment 
loans and other types of alternative loan products, and by 
charging lower fees for less risky borrowers, the overall 
volume of loans guaranteed would increase from about $45 
billion to $65 billion.
    Budgetary Effect. While CBO recognizes that FHA could 
increase the amount of offsetting collections it earns from its 
guarantees by converting from a flat fee structure to risk-
based pricing, we do not expect that its overall collections 
and business volume would change significantly in the next five 
years. Risk-based pricing is complicated, requiring much 
precision in the underwriting process.
    A recent review of FHA's automated underwriting system by 
the Government Accountability Office raises concerns over the 
effectiveness of the system and recommends that additional 
improvements be made. CBO expects that developing and 
maintaining the appropriate systems for managing a risk-based 
pricing structure would take FHA several years to implement. In 
addition, CBO estimates that any changes in volume stemming 
from the changes in pricing and the availability of FHA 
guarantees for a wider range of loan types would, in the short 
term, most likely result in no significant net change to the 
total number of loans guaranteed. That is, while some borrowers 
may turn to FHA because of better pricing and the ability to 
obtain insurance for more attractive loan products, other 
borrowers amy turn away from FHA because of higher pricing. 
Moreover, CBO expects that it would take time for FHA to 
overcome its negative perception in the marketplace and to 
regain its place as a viable competitor in the mortgage 
insurance industry. Thus, CBO estimates that enacting these 
provisions would result in no significant effect on the budget 
in the near term.
    Participation of Mortgage Brokers and Correspondent 
Lenders. Under current law, mortgage brokers and correspondent 
lenders (i.e., entities who do not underwrite or service loans) 
must meet certain financial audit and net-worth requirements to 
originate FHA loans. According to the National Association of 
Mortgage Brokers, these requirements are a barrier to mortgage-
broker participation in the FHA program because the 
requirements can be very cost prohibitive and time consuming, 
especially for certain small businesses. Section 15 of H.R. 
5121 would permit these mortgage brokers and correspondent 
lenders to participate in FHA loan programs if they post a bond 
in the amount of $75,000.
    Based on information from FHA, CBO estimates that while 
this section would expand the number of distribution channels 
for bringing FHA loans to the marketplace, we do not estimate 
that the total number of loans guaranteed would change 
significantly over the next five years, resulting in no 
significant budgetary effect. Currently, there exists a vast 
network of lenders who participate in or who have access to FHA 
loan programs.
    Consolidating Single-Family Programs. Enacting this 
legislation would enable FHA to move several loan guarantee 
programs, including loan guarantees for condominiums and HECM 
loans, from the General Insurance/Special Risk Insurance Fund 
to the Mutual Mortgage Insurance Fund. CBO estimates that this 
administrative change would have no net budgetary effect.
    Intergovnmental and private-sector impact: H.R. 5121 
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: Paige Piper/Bach.
    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 and table of contents

    The section provides the table of contents and the short 
title this title, which is the ``Expanding American 
Homeownership Act of 2006.''

Section 2. Findings and purposes

    This section provides the findings and purposes of this 
title.

Section 3. Maximum principal loan obligation

    Section 3 amends section 203(b)(2) of the National Housing 
Act to change the factors for determining the maximum single 
family mortgage amounts insurable by FHA. Generally, under 
current law, the maximum insurable mortgage is the lesser of a 
maximum allowable dollar amount and an amount based on a 
maximum percentage of appraised value plus the mortgage 
insurance premium.
    Currently, FHA maximum mortgage dollar amounts are 
established with reference to the median home price for the 
area in which the property is located. For a 1-family 
residence, the maximum dollar amount that can be insured is 95 
percent of the median home price for the area. For 2-, 3- and 
4-family residences the maximum dollar amounts that can be 
insured are 107, 130 and 150 percent of such median price, 
respectively. These amounts are capped and cannot exceed 87 
percent of the Federal Home Loan Mortgage Corporation 
Association conforming loan limit, now $362,790 for a 1-unit 
property. There also is a statutory ``floor'' amount. The 
maximum mortgage dollar amount cannot be set lower than the 
``floor'' amount. The current ``floor'' is set at 48 percent of 
the FHLMC conforming loan limit, now $200,160 for a 1-unit 
property.
    This Section allows FHA to insure up to the full median 
house price in the area, as opposed to 95 percent of the median 
house price. This section would remove the 87 percent cap, and 
would allow FHA to insure up to 100 percent of the FHLMC loan 
limit, and increases the ``floor'' to 65 percent of the FHLMC 
conforming loan limit. In place of the existing 107, 130 and 
150 percent loan limit escalators for 2-, 3-, and 4-family 
units, the ratio of loan limits for 2-, 3-, and 4-family 
residences to 1-family residences is conformed to the ratios 
that the national FHLMC conforming loan limits for 2-, 3-, and 
4-unit residences bears to the FHLMC 1-family conforming loan 
limit.
    In addition, Section 3 eliminates the existing loan to 
value percentage limitations embedded in the statute and 
substitutes a single limitation 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 that are approved by the Secretary.
    Finally, the Section removes existing statutory language 
relating to mandatory counseling requirements for FHA 
mortgagors with loans with high (in excess of 97 percent) loan 
to value ratios.

Section 4. Extension of mortgage term

    Section 4 amends section 203(b)(3) of the National Housing 
act to increase the permissible FHA loan term from 35 to 40 
years.

Section 5. Cash investment requirement

    Section 5 amends section 203(b)(9) of the National Housing 
Act to provide more flexibility to cash downpayment 
requirements. This Section eliminates the 3 percent requirement 
and substitute language and allows the Secretary to determine 
the appropriate cash requirement, if any, based upon the 
likelihood of default.

Section 6. Mortgage insurance premiums

    This section establishes the authority for flexible risk-
based premium pricing for FHA single family mortgages. Section 
6 of the proposed legislation adds a new subsection to the 
existing language. The new section 203(c)(3) establishes 
premium pricing flexibility for single family mortgages to be 
insured on or after October 1, 2006. Section 6 contemplates 
that all active FHA single family programs would be 
consolidated within the Mutual Mortgage Insurance Fund (MMIF) 
and that premiums to be charged for prospective business would 
be governed only by the new provisions of new section 
203(c)(3).
    Section 6 also eliminates the current statutory caps on 
premiums that FHA may charge for single family loans. 
Currently, such premiums are capped by statute at 2.25 percent 
upfront and .55 percent annually.
    Section 6 also provides that a change in the premium 
structure shall be accomplished by providing notice to 
mortgagees and to Congress at least 30 days before the premium 
structure is changed.
    This Section also provides statutory guidance for the 
Secretary to consider when establishing or changing premiums. 
The Secretary is to consider the following:
           The effect on the Secretary's ability to 
        meet the operational goals for the MMIF, as contained 
        in section 205(h)(2) of the National Housing Act.
           Underwriting variables affecting the loan;
           The extent to which new pricing has 
        potential for acceptance on the private market;
           The administrative capability of the 
        Secretary to administer the proposed premium structure; 
        and
           The effect on the Secretary's ability to 
        maintain the availability of mortgage credit and 
        provide stability to mortgage markets.

Section 7. Rehabilitation loans

    Section 7 deletes obsolete language in existing section 
203(k)(1). Secondly, the section makes the section 203(k) 
program an obligation of the MMIF, as opposed to the General 
Insurance Fund.

Section 8. Discretionary action

    Section 8 takes existing language contained in section 
203(s) of the National Housing Act, dealing with notification 
requirements about actions taken by the Secretary to suspend or 
revoke the approval of a mortgagee to participate in FHA 
programs, and moves it to section 202 of the National Housing 
Act, which contains the basic authority of the Mortgagee Review 
Board.

Section 9. Insurance of condominiums

    Section 9 establishes a new limitation on the existing 
section 234(c) condominium program. The insurance program will 
be limited in the future to take out financing for multifamily 
blanket mortgages on FHA insured section 234(d) condominium 
projects. This Section also contains a conforming amendment 
which amends section 234(c) of the National Housing Act to 
permit 40 year mortgages.
    In addition, Section 9 amends section 201(a) of the 
National Housing Act to add a definition of condominium 
mortgage to the definition section, consistent with the intent 
to insure condominium mortgages under section 203 of the 
National Housing Act.

Section 10. Mutual Mortgage Insurance Fund

    Section 10 clarifies that the Mutual Mortgage Insurance 
Fund (MMIF) is subject to the provisions of the Credit Reform 
Act of 1990, and the use of ``guarantee'' and ``commitment to 
guarantee'' reflects that purpose. Section 10 directs the 
Secretary to ensure that the Mutual Mortgage Insurance Fund 
remains financially sound.
    This Section also requires the Secretary to provide an 
independent actuarial report to Congress annually on the 
financial status of the Fund. It also requires the Secretary to 
submit a quarterly report on the financial status and soundness 
of the Fund. In addition, this Section grants the Secretary the 
authority to change premiums or underwriting standards if the 
Fund is at risk in accordance with other sections of this bill.
    Section 10 also established operational goals for the Fund, 
which include charging appropriate premiums commensurate with 
the borrower's risk, minimizing the default risk to the Fund 
and to homeowners, curtailing the impact of adverse selection 
on the Fund, and meeting the housing needs of the borrowers 
that this bill is designed to serve.
    This Section also makes insured mortgages that are used in 
conjunction with the Homeownership Voucher program obligations 
of the MMIF and makes reverse mortgages insured under section 
255 of the National Housing Act obligations of the MMIF.

Section 11. Hawaiian Home Land and Indian Reservations

    Section 11 makes single family mortgages insured on 
Hawaiian Home Lands under section 247 of the National Housing 
Act and single family mortgages insured on Indian Reservations 
under section 248 of the National Housing Act obligations of 
the MMIF.

Section 12. Conforming and technical amendments

    Section 12 repeals certain obsolete or little used programs 
and makes two other technical and conforming amendments. The 
programs repealed include:
           Section 203(i) mortgage insurance for 
        outlying areas.
           Sections 203(o), (p) and (q) relating to 
        certain mortgage insurance on Indian lands.
           Section 222 mortgage insurance for 
        servicemen. The program is not operational and the 
        benefits of mortgage insurance are otherwise available 
        under section 203.
           Section 237 special mortgage insurance for 
        low income families.
           Section 245 graduated payment mortgage 
        program.

Section 13. Home Equity Conversion Mortgages

    Section 13 eliminates the current mortgage volume cap of 
mortgages and amends the maximum insurable amount/maximum claim 
amount available to the HECM program. This Section establishes 
the maximum mortgage amount/maximum claim amount as the 
conforming loan limit for the Federal Home Loan Mortgage 
Corporation.
    This Section would add a new subsection to section 255 of 
the National Housing Act to make the HECM available to a 
purchaser of a home.
    Finally, this Section would require the Secretary to 
conduct a study regarding mortgage insurance premiums charged 
under the HECM program.

Section 14. Conforming loan limit in disaster areas

    Section 14 gives the Secretary the authority to enter into 
agreements to insure a mortgage in a Presidential declared 
disaster area that involves a principal obligation of up to 100 
percent of the conforming loan limit for a single family 
residence. The Secretary may do this for a temporary period not 
to exceed 36 months.

Section 15. Participation of mortgage brokers and correspondent lenders

    Section 15 allows correspondent lenders who make, 
underwrite and service mortgages to participate in the FHA 
program. State licensed mortgage brokers will be eligible to 
participate in FHA and the HUD Secretary will have the 
authority to determine which licensed brokers may participate. 
Correspondent lenders and mortgage brokers who do not 
underwrite or service loans will be permitted to post a surety 
bond in the amount of $75,000 in lieu of annual audit and net 
worth requirements.

Section 16. Sense of Congress regarding technology for financial 
        systems

    Section 16 is a Sense of Congress and states that HUD 
should use a portion of the funds FHA receives from premiums in 
excess of what it pays out in claims to upgrade FHA's current 
technology. FHA is also encouraged to submit a report to 
Congress detailing the progress it is making towards this goal 
and any resources it may need to make greater progress.

Section 17. Savings provision

    Section 17 is a savings provision. Single family mortgages 
insured prior to October 1, 2006, would continue to be governed 
by the statutory, regulatory and other provisions applicable to 
the programs prior to that date.

Section 18. Implementation

    This section provides that this title is effective upon 
enactment. The Secretary will by notice establish any 
additional requirements that may be necessary to immediately 
carry out the provisions of this title. The notice will take 
effect upon issuance.

         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):

NATIONAL HOUSING ACT

           *       *       *       *       *       *       *



TITLE I--HOUSING RENOVATION AND MODERNIZATION

           *       *       *       *       *       *       *



                         insurance of mortgages

     Sec. 8. (a)  * * *
     (b) To be eligible for insurance under this section, a 
mortgage shall--
          (1) have been made to[, and be held by,] a mortgagee 
        approved by the Secretary [as responsible and able to 
        service the mortgage properly];

           *       *       *       *       *       *       *


                      TITLE II--MORTGAGE INSURANCE


                              definitions

     Sec. 201. [As used in section 203 of this title--] As used 
in this title and for purposes of participation in insurance 
programs under this title, except as specifically provided 
otherwise, the following definitions shall apply:
          [(a)] (1) The term ``mortgage'' means a first 
        mortgage on real estate, in fee simple, or on a 
        leasehold [(1)] (A) under a lease for not less than 
        ninety-nine years which is renewable [or], [(2)] (B) 
        under a lease having a period of not less than ten 
        years to run beyond the maturity date of the mortgage, 
        or (C) a first mortgage given to secure the unpaid 
        purchase price of a fee interest in, or long-term 
        leasehold interest in, a one-family unit in a 
        multifamily project, including a project in which the 
        dwelling units are attached, semi-detached, or 
        detached, and an undivided interest in the common areas 
        and facilities which serve the project; and the term 
        ``first mortgage'' means such classes of first liens as 
        are commonly given to secure advances on, or the unpaid 
        purchase price of, real estate, under the laws of the 
        State in which the real estate is located, together 
        with the credit instrument, if any, secured thereby.
          [(b) The term ``mortgagee'' includes the original 
        lender under a mortgage, and his successors and assigns 
        approved by the Secretary; and the term ``mortgagor'' 
        includes the original borrower under a mortgage and his 
        successors and assigns.]
          (2) The term ``mortgagee'' means any of the following 
        entities, and its successors and assigns, to the extent 
        such entity is approved by the Secretary:
                  (A) A lender or correspondent lender, who--
                          (i) makes, underwrites, and services 
                        mortgages;
                          (ii) submits to the Secretary such 
                        financial audits performed in 
                        accordance with the standards for 
                        financial audits of the Government 
                        Auditing Standards issued by the 
                        Comptroller of the United States;
                          (iii) meet the minimum net worth 
                        requirement that the Secretary shall 
                        establish; and
                          (iv) complies with such other 
                        requirements as the Secretary may 
                        establish.
                  (B) A correspondent lender who--
                          (i) closes a mortgage in its name but 
                        does not underwrite or service the 
                        mortgage;
                          (ii) posts a surety bond, in lieu of 
                        any requirement to provide audited 
                        financial statements or meet a minimum 
                        net worth requirement, in--
                                  (I) a form satisfactory to 
                                the Secretary; and
                                  (II) an amount of $75,000, as 
                                such amount is adjusted 
                                annually by the Secretary (as 
                                determined under regulations of 
                                the Secretary) by the change 
                                for such year in the Consumer 
                                Price Index for All Urban 
                                Consumers published monthly by 
                                the Bureau of Labor Statistics 
                                of the Department of Labor; and
                          (iii) complies with such other 
                        requirements as the Secretary may 
                        establish.
                  (C) A mortgage broker who--
                          (i) closes the mortgage in the name 
                        of the lender and does not make, 
                        underwrite, or service the mortgage;
                          (ii) is licensed, under the laws of 
                        the State in which the property that is 
                        subject to the mortgage is located, to 
                        act as a mortgage broker in such State;
                          (iii) posts a surety bond in 
                        accordance with the requirements of 
                        subparagraph (B)(ii); and
                          (iv) complies with such other 
                        requirements as the Secretary may 
                        establish.
          (3) The term ``mortgagor'' includes the original 
        borrower under a mortgage and the successors and 
        assigns of the original borrower.
          [(c)] (4) The term ``maturity date'' means the date 
        on which the mortgage indebtedness would be 
        extinguished if paid in accordance with periodic 
        payments provided for in the mortgage.
          [(d)] (5) The term ``State'' includes the several 
        States and Puerto Rico, the District of Columbia, Guam, 
        [the Trust Territory of the Pacific Islands] the 
        Commonwealth of the Northern Mariana Islands, American 
        Samoa, and the Virgin Islands.
          [(e)] (6) The term ``family member'' means, with 
        respect to a mortgagor under such section, a child, 
        parent, or grandparent of the mortgagor (or the 
        mortgagor's spouse). In determining whether any of the 
        relationships referred to in the preceding sentence 
        exist, a legally adopted son or daughter of an 
        individual (and a child who is a member of an 
        individual's household, if placed with such individual 
        by an authorized placement agency for legal adoption by 
        such individual), and a foster child of an individual, 
        shall be treated as a child of such individual by 
        blood.
          [(f)] (7) The term ``child'' means, with respect to a 
        mortgagor under such section, a son, stepson, daughter, 
        or stepdaughter of such mortgagor.

               FEDERAL HOUSING ADMINISTRATION OPERATIONS

     Sec. 202. [(a) Mutual Mortgage Insurance Fund.--There is 
hereby created a Mutual Mortgage Insurance Fund (hereinafter 
referred to as the ``Fund''), which shall be used by the 
Secretary as a revolving fund for carrying out the provisions 
of this title with respect to mortgages insured under section 
203 as hereinafter provided, and there shall be allocated 
immediately to such Fund the sum of $10,000,000 out of funds 
made available to the Secretary for the purposes of this 
title.]
  (a) Mutual Mortgage Insurance Fund.--
          (1) Establishment.--Subject to the provisions of the 
        Federal Credit Reform Act of 1990, there is hereby 
        created a Mutual Mortgage Insurance Fund (in this title 
        referred to as the ``Fund''), which shall be used by 
        the Secretary to carry out the provisions of this title 
        with respect to mortgages insured under section 203. 
        The Secretary may enter into commitments to guarantee, 
        and may guarantee, such insured mortgages.
          (2) Limit on loan guarantees.--The authority of the 
        Secretary to enter into commitments to guarantee such 
        insured mortgages shall be effective for any fiscal 
        year only to the extent that the aggregate original 
        principal loan amount under such mortgages, any part of 
        which is guaranteed, does not exceed the amount 
        specified in appropriations Acts for such fiscal year.
          (3) Fiduciary responsibility.--The Secretary has a 
        responsibility to ensure that the Mutual Mortgage 
        Insurance Fund remains financially sound.
          (4) Annual independent actuarial study.--The 
        Secretary shall provide for an independent actuarial 
        study of the Fund to be conducted annually, which shall 
        analyze the financial position of the Fund. The 
        Secretary shall submit a report annually to the 
        Congress describing the results of such study and 
        assessing the financial status of the Fund. The report 
        shall recommend adjustments to underwriting standards, 
        program participation, or premiums, if necessary, to 
        ensure that the Fund remains financially sound.
          (5) Quarterly reports.--During each fiscal year, the 
        Secretary shall submit a report to the Congress for 
        each quarter, which shall specify for mortgages that 
        are obligations of the Fund--
                  (A) the cumulative volume of loan guarantee 
                commitments that have been made during such 
                fiscal year through the end of the quarter for 
                which the report is submitted;
                  (B) the types of loans insured, categorized 
                by risk;
                  (C) any significant changes between actual 
                and projected claim and prepayment activity;
                  (D) projected versus actual loss rates; and
                  (E) updated projections of the annual subsidy 
                rates to ensure that increases in risk to the 
                Fund are identified and mitigated by 
                adjustments to underwriting standards, program 
                participation, or premiums, and the financial 
                soundness of the Fund is maintained.
        The first quarterly report under this paragraph shall 
        be submitted on the last day of the first quarter of 
        fiscal year 2007, or upon the expiration of the 90-day 
        period beginning on the date of the enactment of the 
        Expanding American Homeownership Act of 2006, whichever 
        is later.
          (6) Adjustment of premiums.--If, pursuant to the 
        independent actuarial study of the Fund required under 
        paragraph (5), the Secretary determines that the Fund 
        is not meeting the operational goals established under 
        paragraph (8) or there is a substantial probability 
        that the Fund will not maintain its established target 
        subsidy rate, the Secretary may either make 
        programmatic adjustments under section 203 as necessary 
        to reduce the risk to the Fund, or make appropriate 
        premium adjustments.
          (7) Operational goals.--The operational goals for the 
        Fund are--
                  (A) to charge borrowers under loans that are 
                obligations of the Fund an appropriate premium 
                for the risk that such loans pose to the Fund;
                  (B) to minimize the default risk to the Fund 
                and to homeowners;
                  (C) to curtail the impact of adverse 
                selection on the Fund; and
                  (D) to meet the housing needs of the 
                borrowers that the single family mortgage 
                insurance program under this title is designed 
                to serve.

           *       *       *       *       *       *       *

     (c) Mortgagee Review Board.--
          (1)  * * *

           *       *       *       *       *       *       *

          (7) Definition of ``mortgagee''.--For purposes of 
        this subsection, the term ``mortgagee'' means--
                  (A) a mortgagee, as defined in section 201, 
                approved under this Act;
                  [(B) a lender or a loan correspondent 
                approved under title I of this Act;]
                  [(C)] (B) a branch office or subsidiary of 
                the mortgagee, lender, or loan correspondent; 
                or
                  [(D)] (C) a director, officer, employee, 
                agent, or other person participating in the 
                conduct of the affairs of the mortgagee, 
                lender, or loan correspondent.

           *       *       *       *       *       *       *

     [(s)] (e) Whenever the Secretary has taken any 
discretionary action to suspend or revoke the approval of any 
mortgagee to participate in any mortgage insurance program 
under this title, the Secretary shall provide prompt notice of 
the action and a statement of the reasons for the action to--
          (1)  * * *

           *       *       *       *       *       *       *

          [(4) the Administrator of the Farmers Home 
        Administration;]
          (4) the Secretary of Agriculture;

           *       *       *       *       *       *       *

     [(e)] (f) Appraisal Standards.--(1)  * * *

           *       *       *       *       *       *       *

     (3) Direct Endorsement Program.--
          (A)  * * *
          (B) Any appraisal conducted pursuant to subparagraph 
        (A) shall be conducted by an individual who complies 
        with the qualifications or standards for appraisers 
        established by the Secretary pursuant to [section 
        202(e) of the National Housing Act] this subsection.

           *       *       *       *       *       *       *


                         insurance of mortgages

     Sec. 203. (a)  * * *
     (b) To be eligible for insurance under this section a 
mortgage shall comply with the following:
          (1) Have been made to[, and be held by,] a mortgagee 
        approved by the Secretary [as responsible and able to 
        service the mortgage properly].
          (2) Involve a principal obligation (including such 
        initial service charges, appraisal, inspection, and 
        other fees as the Secretary shall approve) in an 
        amount--
          [(A) not to exceed the lesser of--
                          [(i) in the case of a 1-family 
                        residence, 95 percent of the median 1-
                        family house price in the area, as 
                        determined by the Secretary; in the 
                        case of a 2-family residence, 107 
                        percent of such median price; in the 
                        case of a 3-family residence, 130 
                        percent of such median price; or in the 
                        case of a 4-family residence, 150 
                        percent of such median price; or
                          [(ii) 87 percent of the dollar amount 
                        limitation determined under section 
                        305(a)(2) of the Federal Home Loan 
                        Mortgage Corporation Act for a 
                        residence of the applicable size; 
                        except that the dollar amount 
                        limitation in effect for any area under 
                        this subparagraph may not be less than 
                        the greater of the dollar amount 
                        limitation in effect under this section 
                        for the area on the date of the 
                        enactment of the Departments of 
                        Veterans Affairs and Housing and Urban 
                        Development, and Independent Agencies 
                        Appropriations Act for Fiscal Year 1999 
                        or 48 percent of the dollar limitation 
                        determined under section 305(a)(2) of 
                        the Federal Home Loan Mortgage 
                        Corporation Act for a residence of the 
                        applicable size; and
                  [(B) not to exceed an amount equal to the sum 
                of--
                          [(i) the amount of the mortgage 
                        insurance premium paid at the time the 
                        mortgage is insured; and
                          [(ii) in the case of--
                                  [(I) a mortgage for a 
                                property with an appraised 
                                value equal to or less than 
                                $50,000, 98.75 percent of the 
                                appraised value of the 
                                property;
                                  [(II) a mortgage for a 
                                property with an appraised 
                                value in excess of $50,000 but 
                                not in excess of $125,000, 
                                97.65 percent of the appraised 
                                value of the property;
                                  [(III) a mortgage for a 
                                property with an appraised 
                                value in excess of $125,000, 
                                97.15 percent of the appraised 
                                value of the property; or
                                  [(IV) notwithstanding 
                                subclauses (II) and (III), a 
                                mortgage for a property with an 
                                appraised value in excess of 
                                $50,000 that is located in an 
                                area of the State for which the 
                                average closing cost exceeds 
                                2.10 percent of the average, 
                                for the State, of the sale 
                                price of properties located in 
                                the State for which mortgages 
                                have been executed, 97.75 
                                percent of the appraised value 
                                of the property.]
                  (A) not to exceed the lesser of--
                          (i) in the case of a 1-family 
                        residence, the median 1-family house 
                        price in the area, as determined by the 
                        Secretary; and in the case of a 2-, 3-, 
                        or 4-family residence, the percentage 
                        of such median price that bears the 
                        same ratio to such median price as the 
                        dollar amount limitation in effect 
                        under section 305(a)(2) of the Federal 
                        Home Loan Mortgage Corporation Act (12 
                        U.S.C. 1454(a)(2)) for a 2-, 3-, or 4-
                        family residence, respectively, bears 
                        to the dollar amount limitation in 
                        effect under such section for a 1-
                        family residence; or
                          (ii) the dollar amount limitation 
                        determined under such section 305(a)(2) 
                        for a residence of the applicable size;
                except that the dollar amount limitation in 
                effect for any area under this subparagraph may 
                not be less than the greater of (I) the dollar 
                amount limitation in effect under this section 
                for the area on October 21, 1998, or (II) 65 
                percent of the dollar limitation determined 
                under such section 305(a)(2) for a residence of 
                the applicable size; and
                  (B) not to exceed 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.
        For purposes of the preceding sentence, the term 
        ``area'' means a metropolitan statistical area as 
        established by the Office of Management and Budget; and 
        the median 1-family house price for an area shall be 
        equal to the median 1-family house price of the county 
        within the area that has the highest such median price. 
        [For purposes of this paragraph, the term ``average 
        closing cost'' means, with respect to a State, the 
        average, for mortgages executed for properties that are 
        located within the State, of the total amounts (as 
        determined by the Secretary) of initial service 
        charges, appraisal, inspection, and other fees (as the 
        Secretary shall approve) that are paid in connection 
        with such mortgages. Notwithstanding any other 
        provision of this section, in any case where the 
        dwelling is not approved for mortgage insurance prior 
        to the beginning of construction, such mortgage shall 
        not exceed 90 per centum of the entire appraised value 
        of the property as of the date the mortgage is accepted 
        for insurance, unless (i) the dwelling was completed 
        more than one year prior to the application for 
        mortgage insurance, or (ii) the dwelling was approved 
        for guaranty, insurance, or a direct loan under chapter 
        37 of title 38, United States Code, prior to the 
        beginning of construction, or (iii) the dwelling is 
        covered by a consumer protection or warranty plan 
        acceptable to the Secretary and satisfies all 
        requirements which would have been applicable if such 
        dwelling had been approved for mortgage insurance prior 
        to the beginning of construction. As used herein, the 
        term ``veteran'' means any person who served on active 
        duty in the armed forces of the United States for a 
        period of not less than 90 days (or as certified by the 
        Secretary of Defense as having performed extra-
        hazardous service), and who was discharged or released 
        therefrom under conditions other than dishonorable, 
        except that persons enlisting in the armed forces after 
        September 7, 1980, or entering active duty after 
        October 16, 1981, shall have their eligibility 
        determined in accordance with section 3103A(d) of title 
        38, United States Code.

           *       *       *       *       *       *       *

          [Notwithstanding any other provision of this 
        paragraph, the Secretary may not insure, or enter into 
        a commitment to insure, a mortgage under this section 
        that is executed by a first-time homebuyer and that 
        involves a principal obligation (including such initial 
        service charges, appraisal, inspection, and other fees 
        as the Secretary shall approve) in excess of 97 percent 
        of the appraised value of the property unless the 
        mortgagor has completed a program of counseling with 
        respect to the responsibilities and financial 
        management involved in homeownership that is approved 
        by the Secretary; except that the Secretary may, in the 
        discretion of the Secretary, waive the applicability of 
        this requirement.]
          (3) Have a maturity satisfactory to the Secretary, 
        but not to exceed, in any event, [thirty-five years (or 
        thirty years if such mortgage is not approved for 
        insurance prior to construction)] forty years from the 
        date of the beginning of amortization of the mortgage.

           *       *       *       *       *       *       *

     (c)(1)  * * *
     (2) [Notwithstanding] Except as provided in paragraph (3) 
and notwithstanding any other provision of this section, each 
mortgage secured by a 1- to 4-family dwelling that is an 
obligation of the Mutual Mortgage Insurance Fund or of the 
General Insurance Fund pursuant to subsection (v) and each 
mortgage that is insured under subsection (k) or section 
234(c), shall be subject to the following requirements:
          (A)  * * *

           *       *       *       *       *       *       *

  (3) Flexible Risk-Based Premiums.--
          (A) In general.--For any mortgage insured by the 
        Secretary under this title that is secured by a 1- to 
        4-family dwelling and for which the loan application is 
        received by the mortgagee on or after October 1, 2006, 
        the Secretary may establish a mortgage insurance 
        premium structure involving a single premium payment 
        collected prior to the insurance of the mortgage or 
        periodic payments, or both, without regard to any 
        maximum or minimum premium amounts set forth in this 
        subsection. The rate of premium for such a mortgage may 
        vary during the mortgage term as long as the basis for 
        determining the variable rate is established before the 
        execution of the mortgage. The Secretary may change a 
        premium structure established under this subparagraph 
        but only to the extent that such change is not applied 
        to any mortgage already executed.
          (B) Establishment and alteration of premium 
        structure.--A premium structure shall be established or 
        changed under subparagraph (A) only by providing notice 
        to mortgagees and to the Congress, at least 30 days 
        before the premium structure is established or changed.
          (C) Considerations for premium structure.--When 
        establishing a premium structure under subparagraph (A) 
        or when changing such a premium structure, the 
        Secretary shall consider the following:
                  (i) The effect of the proposed premium 
                structure on the Secretary's ability to meet 
                the operational goals of the Mutual Mortgage 
                Insurance Fund as provided in section 202(a).
                  (ii) Underwriting variables.
                  (iii) The extent to which new pricing under 
                the proposed premium structure has potential 
                for acceptance in the private market.
                  (iv) The administrative capability of the 
                Secretary to administer the proposed premium 
                structure.
                  (v) The effect of the proposed premium 
                structure on the Secretary's ability to 
                maintain the availability of mortgage credit 
                and provide stability to mortgage markets.

           *       *       *       *       *       *       *

     (h) Notwithstanding any other provision of this section, 
the Secretary is authorized to insure any mortgage which 
involves a principal obligation not in excess of the applicable 
maximum dollar limit under subsection (b) and not in excess of 
100 per centum of the appraised value of a property plus any 
initial service charges, appraisal, inspection and other fees 
in connection with the mortgage as approved by the Secretary, 
upon which there is located a dwelling designed principally for 
a single-family residence, where the mortgagor establishes (to 
the satisfaction of the Secretary) that his home which he 
occupied as an owner or as a tenant was destroyed or damaged to 
such an extent that reconstruction is required as a result of a 
flood, fire, hurricane, earthquake, storm, or other 
catastrophe, which the President, pursuant to Robert T. 
Stafford Disaster Relief and Emergency Assistance Act, has 
determined to be a major disaster. [In any case in which the 
single family residence to be insured under this subsection is 
within a jurisdiction in which the President has declared a 
major disaster to have occurred, the Secretary is authorized, 
for a temporary period not to exceed 18 months from the date of 
such Presidential declaration, to enter into agreements to 
insure a mortgage which involves a principal obligation of up 
to 100 percent of the dollar limitation determined under 
section 305(a)(2) of the Federal Home Loan Mortgage Corporation 
Act for single family residence, and not in excess of 100 
percent of the appraised value.] In any case in which the 
single family residence to be insured under this subsection is 
within a jurisdiction in which the President has declared a 
major disaster to have occurred, the Secretary is authorized, 
for a temporary period not to exceed 36 months from the date of 
such Presidential declaration, to enter into agreements to 
insure a mortgage which involves a principal obligation of up 
to 100 percent of the dollar limitation determined under 
section 305(a)(2) of the Federal Home Loan Mortgage Corporation 
Act for a single family residence, and 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.
     [(i) The Secretary is authorized to insure under this 
section, any mortgage meeting the requirements of subsection 
(b) of this section, except as modified by this subsection, 
which involves a principal obligation not in excess of 75 per 
centum of the limit on the principal obligation applicable to a 
one-family residence under subsection (b) of this section and 
not in excess of 97 per centum (or, in any case where the 
dwelling is not approved for mortgage insurance prior to the 
beginning of construction, unless the construction of the 
dwelling was completed more than one year prior to the 
application for mortgage insurance or the dwelling was approved 
for guaranty, insurance, or direct loan under chapter 37 of 
title 38, United States Code, prior to the beginning of 
construction, 90 per centum) of the appraised value of a 
property located in an area where the Secretary finds it is not 
practicable to obtain conformity with many of the requirements 
essential to the insurance of mortgages on housing in built-up 
urban areas, upon which there is located a dwelling designed 
principally for a single-family residence: Provided, That the 
Secretary finds that the property with respect to which the 
mortgage is executed is an acceptable risk, giving 
consideration to the need for providing adequate housing for 
families of low and moderate income particularly in suburban 
and outlying areas or small communities: Provided further, That 
under the foregoing provisions of this subsection the Secretary 
is authorized to insure any mortgage issued with respect to a 
farm home on a plot of land two and one-half or more acres in 
size adjacent to an all-weather public road.]

           *       *       *       *       *       *       *

     (k)(1) The Secretary may, in order to assist in the 
rehabilitation of one- to four-family structures used primarily 
for residential purposes, insure and make commitments to insure 
rehabilitation loans (including advances made during 
rehabilitation) made by financial institutions [on and after 
180 days following the date of enactment of the Housing and 
Community Development Amendments of 1978]. Such commitments to 
insure and such insurance shall be made upon such terms and 
conditions which the Secretary may prescribe and which are 
consistent with the provisions of subsections (b), (c), (e), 
(i) and (j) of this section, except as modified by the 
provisions of this subsection.

           *       *       *       *       *       *       *

     (5) All funds received and all disbursements made pursuant 
to the authority established by this subsection shall be 
credited or charged as appropriate, to the [General Insurance 
Fund] Mutual Mortgage Insurance Fund, and insurance benefits 
shall be paid in cash out of such Fund or in debentures 
executed in the name of such Fund. Insurance benefits paid with 
respect to loans secured by a first mortgage and insured under 
this subsection shall be paid in accordance with section 204[, 
except that all references in section 204 to the Mutual 
Mortgage Insurance Fund shall be construed as referring to the 
General Insurance Fund]. Insurance benefits paid with respect 
to loans secured by a mortgage other than a first mortgage and 
insured under this subsection shall be paid in accordance with 
paragraphs (6) and (7) of section 220(h), except that reference 
to ``this subsection'' in such paragraphs shall be construed as 
referring to this subsection.

           *       *       *       *       *       *       *

     [(o)(1) Notwithstanding any other provision of this 
section or any other section of this title, the Secretary is 
authorized to insure, and to commit to insure, under subsection 
(b) of this section as modified by this subsection a mortgage 
which meets both the requirements of this subsection and such 
criteria as the Secretary by regulation may prescribe to 
further the purpose of this subsection, in any community where 
the Secretary determines that--
          [(A) temporary adverse economic conditions exist 
        throughout the community as a direct and primary result 
        of outstanding claims to ownership of land in the 
        community by an American Indian tribe, band, or Nation;
          [(B) such ownership claims are reasonably likely to 
        be settled, by court action or otherwise;
          [(C) as a direct result of the community's 
        temporarily impaired economic condition, owner 
        occupants of homes in the community have been 
        involuntarily unemployed or underemployed and have thus 
        incurred substantial reductions in income which 
        significantly impair their ability to continue timely 
        payment of their mortgages;
          [(D) as a result, widespread mortgage foreclosures 
        and distress sales of homes are likely in the 
        community; and
          [(E) fifty or more individual homeowners were joined 
        as parties defendant or were members of a defendant 
        class prior to December 31, 1976, in litigation 
        involving claims to ownership of land in the community 
        by an American Indian tribe, band, or Nation.
     [(2) A mortgage shall be eligible for insurance under 
subsection (b) of this section as modified by this subsection 
without regard to limitations in this title relating to a 
mortgagor's reasonable ability to pay, economic soundness, 
marketability of title, or any other statutory restriction 
which the Secretary determines is contrary to the purpose of 
this subsection, but only if the mortgagor is an owner of a 
home in a community specified in paragraph (1) who, as a direct 
result of the community's temporarily impaired economic 
condition, has been involuntarily unemployed or underemployed 
and has thus incurred a substantial reduction in income which 
significantly impairs the owner's ability to continue timely 
payment of the mortgage. The Secretary is authorized to 
encourage or afford directly to or on behalf of mortgagors 
whose mortgages are insured under subsection (b) as modified by 
this subsection forebearance, assignment of mortgages to the 
Secretary, or such other relief as the Secretary deems 
appropriate and consistent with the purpose of this subsection. 
The Secretary, in connection with any mortgage insured under 
subsection (b) as modified by this subsection, shall have all 
statutory powers, authority, and responsibilities which the 
Secretary has with respect to other mortgages insured under 
subsection (b), except that the Secretary may modify such 
powers, authority, or responsibilities where the Secretary 
deems such action to be necessary because of the special nature 
of the mortgage involved. Notwithstanding section 202 of this 
title, the insurance of a mortgage under subsection (b) of this 
section as modified by this subsection shall be the obligation 
of the Special Risk Insurance Fund created pursuant to section 
238 of this title.
     [(p)(1) Notwithstanding any other provision of this 
section or any other section of this title, the Secretary is 
authorized to insure, and to commit to insure, under subsection 
(b) of this section as modified by this subsection a mortgage 
which meets both the requirements of this subsection and such 
criteria as the Secretary by regulation shall prescribe to 
further the purpose of this subsection, in any community where 
the Secretary determines that--
          [(A) temporary adverse economic conditions exist 
        throughout the community as a direct and primary result 
        of outstanding claims to ownership of land in the 
        community by an American Indian tribe, band, or nation;
          [(B) such ownership claims are reasonably likely to 
        be settled, by court action or otherwise; and
          [(C) fifty or more individual homeowners were joined 
        as parties defendant or were members of a defendant 
        class prior to April 1, 1980, in ligitation involving 
        claims to ownership of land in the community by an 
        American Indian tribe, band, group, or nation pursuant 
        to a dispute involving the Articles of Confederation, 
        Trade and Intercourse Act of 1790, or any similar State 
        or Federal law.
     [(2) A mortgage shall be eligible for insurance under 
subsection (b) of this section as modified by this subsection 
without regard to limitations in this title relating to 
marketability of title, or any other statutory restriction 
which the Secretary determines is contrary to the purpose of 
this subsection, but only if the mortgagor is an owner of a 
home in a community specified in paragraph (1). The Secretary, 
in connection with any mortgage insured under subsection (b) as 
modified by this subsection, shall have all statutory powers, 
authority, and responsibilities which the Secretary has with 
respect to other mortgages insured under subsection (b), except 
that the Secretary may modify such powers, authority, or 
responsibilities where the Secretary deems such action to be 
necessary because of the special nature of the mortgage 
involved. Notwithstanding section 202 of this title, the 
insurance of a mortgage under subsection (b) of this section as 
modified by this subsection shall be the obligation of the 
Special Risk Insurance Fund created pursuant to section 238 of 
this title.
     [(q)(1) Notwithstanding any other provision of this 
section or any other section of this title, the Secretary shall 
insure and commit to insure, under subsection (b) as modified 
by this subsection, any mortgage secured by property located on 
land that--
          [(A) is within the Allegany Reservation of the Seneca 
        Nation of New York Indians; and
          [(B) is subject to a lease entered into for a term of 
        99 years pursuant to the Act of February 19, 1875 
        (Chapter 90; 18 Stat. 330) and the Act of September 30, 
        1890 (Chapter 1132; 26 Stat. 558).
     [(2) A mortgage shall be eligible for insurance under 
subsection (b) as modified by this subsection without regard to 
limitations in this title relating to marketability of title or 
any other statutory restriction that the Secretary determines 
is contrary to the purpose of this subsection.
     [(3) The Secretary, in connection with any mortgage 
insured under subsection (b) as modified by this subsection, 
shall have all statutory powers, authority, and 
responsibilities that the Secretary has with respect to other 
mortgages insured under subsection (b), except that the 
Secretary may modify such powers, authority, or 
responsibilities if the Secretary determines such action to be 
necessary because of the special nature of the mortgage 
involved.
     [(4) Notwithstanding section 202, the insurance of a 
mortgage under subsection (b) as modified by this subsection 
shall be the obligation of the Special Risk Insurance Fund 
created in section 238.]

           *       *       *       *       *       *       *

     (u)(1)  * * *
     (2) For purposes of this subsection--
          (A) the term ``area'' [shall have the meaning given 
        the term under subsection (b)(2);] means a metropolitan 
        statistical area as established by the Office of 
        Management and Budget;

           *       *       *       *       *       *       *

  (v) [Notwithstanding section 202 of this title, the] The 
insurance of a mortgage under this section in connection with 
the assistance provided under section 8(y) of the United States 
Housing Act of 1937 shall be the obligation of the [General 
Insurance Fund created pursuant to section 519 of this title. 
The provisions of subsections (a) through (h), (j), and (k) of 
section 204 shall apply to such mortgages, except that (1) all 
references in section 204 to the Mutual Mortgage Insurance Fund 
or the Fund shall be construed to refer to the General 
Insurance Fund, and (2) any excess amounts described in section 
204(f)(1) shall be retained by the Secretary and credited to 
the General Insurance Fund. The report required under this 
subsection shall include the report required under section 
540(c) and the report required under section 205(g).] Mutual 
Mortgage Insurance Fund.

           *       *       *       *       *       *       *


             classification of mortgages and insurance fund

     Sec. 205. (a)  * * *

           *       *       *       *       *       *       *

     [(g) The Secretary shall provide for an independent 
actuarial study of the Mutual Mortage Insurance Fund to be 
conducted annually and shall report annually to the Congress 
regarding the financial status of the Fund.
     [(h)(1) If, pursuant to the independent annual actuarial 
study of the Mutual Mortgage Insurance Fund required under 
subsection (g), the Secretary determines that the Mutual 
Mortgage Insurance Fund is not meeting the operational goals 
under paragraph (2), the Secretary may not issue distributions, 
and may, by regulation, propose and implement any adjustments 
to the insurance premiums under section 203(c) or section 
2103(b) of the Omnibus Budget Reconciliation Act of 1990. Upon 
determining that a premium change is appropriate under the 
preceding sentence, the Secretary shall immediately notify 
Congress of the proposed change and the reasons for the change. 
Any such premium change shall not take effect before the 
expiration of the 90-day period beginning upon such 
notification.
     [(2) The operational goals referred to in paragraph (1) 
shall be--
          [(A) maintaining an adequate capital ratio;
          [(B) meeting the needs of homebuyers with low 
        downpayments and first-time homebuyers by providing 
        access to mortgage credit;
          [(C) minimizing the risk to the Fund and to 
        homeowners from homeowner default; and
          [(D) avoiding adverse selection.]

           *       *       *       *       *       *       *


                        rental housing insurance

     Sec. 207. (a) As used in this section--
     (1)  * * *
     (2) The term ``mortgagee'' [means the original lender 
under a mortgage, and its successors and assigns, and] has the 
meaning given such term in section 201, except that such term 
also includes the holders of credit instruments issued under a 
trust mortgage or deed of trust pursuant to which such holders 
act by and through a trustee therein named.

           *       *       *       *       *       *       *


           housing for moderate income and displaced families

     Sec. 221. (a)  * * *

           *       *       *       *       *       *       *

     (d) To be eligible for insurance under this section, a 
mortgage shall--
          (1) have been made to [and be held by] a mortgagee 
        approved by the Secretary [as responsible and able to 
        service the mortgage properly];

           *       *       *       *       *       *       *


                  [mortgagor insurance for servicemen

     [Sec. 222. (a) The purpose of this section is to aid in 
the provision of housing accommodations for servicemen in the 
Armed Forces of the United States, servicemen in the United 
States Coast Guard and their families, and servicemen in the 
United States National Oceanic and Atmospheric Administration 
and their families by supplementing the insurance of mortgages 
under section 203 of this title with a system of mortgage 
insurance specially designed to assist the financing required 
for the construction or purchase of dwellings by those persons. 
As used in this section, a ``servicemen'' means a person to 
whom the Secretary of Defense (or any officer or employee 
designated by him), the Secretary of Transportation (or any 
officer or employee designated by him), or the Secretary of 
Commerce (or any officer or employee designated by him), as the 
case may be, has issued a certificate hereunder indicating that 
such person requires housing, is serving on active duty in the 
Armed Forces of the United States, in the United States Coast 
Guard, or in the United States National Oceanic and Atmospheric 
Administration and has served on active duty for more than two 
years, but a certificate shall not be issued hereunder to any 
person ordered to active duty for training purposes only. The 
Secretary of Defense, the Secretary of Transportation, and the 
Secretary of Commerce, respectively, are authorized to 
prescribe rules and regulations governing the issuance of such 
certificates and may withhold issuance of more than one such 
certificate to a serviceman whenever in his discretion issuance 
is not justified due to circumstances resulting from military 
assignment, or, in the case of the United States Coast Guard or 
the United States National Oceanic and Atmospheric 
Administration, other assignment.
     [(b) To be eligible for insurance under this section a 
mortgage shall--
          [(1) meet the requirements of section 203(b) or 
        203(i), or 221(d)(2), or 234(c), except as such 
        requirements are modified by this section;
          [(2) involve a dwelling designed principally for a 
        one-family residence or a one-family unit in a 
        condominium project;
          [(3) have a principal obligation not in excess of the 
        sum of (i) 97 per centum of $25,000 of the appraised 
        value of the property as of the date the mortgage is 
        accepted for insurance, and (ii) 95 per centum of such 
        value in excess of $25,000; and
          [(4) be executed by a mortgagor who at the time of 
        application for insurance is certified as a 
        ``serviceman'' and who at the time of insurance is the 
        owner of the property and either occupies the property 
        as a principal residence or certifies that his failure 
        to do so is the result of his military assignment, or 
        in the case of the United States Coast Guard or the 
        United States National Oceanic and Atmospheric 
        Administration, other assignment.
     [(c) The Secretary may prescribe the manner in which a 
mortgage may be accepted for insurance under this section. 
Premiums fixed by the Secretary under section 203 with respect 
to, or payable during, the period of ownership by a serviceman 
of the property involved shall not be payable by the mortgagee 
but shall be paid not less frequently than once each year, upon 
request of the Secretary to the Secretary of Defense, the 
Secretary of Transportation, or the Secretary of Commerce, as 
the case may be, from the respective appropriations available 
for pay and allowances of persons eligible for mortgage 
insurance under this section. As used herein, ``the period of 
ownership by a serviceman'' means the period, for which 
premiums are fixed, prior to the date that the Secretary of 
Defense (or any officer or employee or other persons designated 
by him), the Secretary of Transportation (or any officer or 
employee or other person designated by him), or the Secretary 
of Commerce (or any officer or employee or other person 
designated by him), as the case may be, furnishes the Secretary 
with a certification that such ownership (as defined by the 
Secretary), has terminated.
     [(d) Any mortgagee under a mortgage insured under this 
section is entitled to the benefits of the insurance as 
provided in section 204(a) with respect to mortgages insured 
under section 203.
     [(e) The provisions of subsections (b), (c), (d), (e), 
(f), (g), (h), (j), and (k) of section 204 shall apply to 
mortgages insured under this section, except that as applied to 
those mortgages (1) all references to the ``Fund,'' or ``Mutual 
Mortgage Insurance Fund,'' shall refer to the General Insurance 
Fund, and (2) all references to ``section 203'' shall refer to 
this section.
     [(f) The Secretary is authorized to transfer to this 
section the insurance on any mortgage covering a single-family 
dwelling or a one-family unit in a condominium project insured 
under this Act, if the mortgage indebtedness thereof has been 
assumed by a serviceman who at the time of assumption is the 
owner of the property and either occupies the property as a 
principal residence or certifies that his failure to do so is 
the result of his military assignment, or, in the case of the 
United States Coast Guard or the United States National Oceanic 
and Atmospheric Administration, other assignment.
     [(g) Where a serviceman dies while on active duty in the 
Armed Forces of the United States or in the United States Coast 
Guard or in the United States National Oceanic and Atmospheric 
Administration, leaving a surviving widow as owner of the 
property, the period of ownership by the serviceman (within the 
meaning of subsection (c) of this section) shall extend for two 
years beyond the date of the serviceman's death or until the 
date the widow disposes of the property, whichever date occurs 
first. The Secretary of Defense or the Secretary of 
Transportation, or the Secretary of Commerce, as the case may 
be, shall notify such widow promptly following the serviceman's 
death of the additional costs to be borne by the mortgagor 
following termination of the two year period.]

           *       *       *       *       *       *       *


                  mortgage insurance for condominiums

     Sec. 234. (a)  * * *

           *       *       *       *       *       *       *

     (c) The Secretary is authorized, in his discretion and 
under such terms and conditions as he may prescribe (including 
the minimum number of family units in the project which shall 
be offered for sale and provisions for the protection of the 
consumer and the public interest), to insure any mortgage 
covering a one-family unit in a multifamily project and an 
undivided interest in the common areas and facilities which 
serve the project if (1) the mortgage meets the requirements of 
this subsection and of section 203(b), except as that section 
is modified by this subsection, [and] (2) at least 80 percent 
of the units in the project covered by mortgages insured under 
this title are occupied by the mortgagors or comortgagors, and 
(3) the project has a blanket mortgage insured by the Secretary 
under subsection (d). Any project proposed to be constructed or 
rehabilitated after the date of enactment of the Housing Act of 
1961 with the assistance of mortgage insurance under this Act, 
where the sale of family units is to be assisted with mortgage 
insurance under this subsection, shall be subject to such 
requirements as the Secretary may prescribe. To be eligible for 
insurance pursuant to this subsection, a mortgage shall (A) 
involve a principal obligation in an amount not to exceed the 
maximum principal obligation of a mortgage which may be insured 
in the area pursuant to section 203(b)(2) or pursuant to 
section 203(h) under the conditions described in section 203(h) 
or pursuant to section 203(h) under the conditions described in 
section 203(h), and (B) have a maturity satisfactory to the 
Secretary, but not to exceed, in any event, [thirty-five years] 
forty years from the date of the beginning of amortization of 
the mortgages. The mortgage shall contain such provisions as 
the Secretary determines to be necessary for the maintenance of 
common areas and facilities and the multifamily project. The 
mortgagor shall have exclusive right to the use of the one-
family unit covered by the mortgage and, together with the 
owners of other units in the multifamily project, shall have 
the right to the use of the common areas and facilities serving 
the project and the obligation of maintaining all such common 
areas and facilities. The Secretary may require that the rights 
and obligations of the mortgagor and the owners of other 
dwelling units in the project shall be subject to such controls 
as he determines to be necessary and feasible to promote and 
protect individual owners, the multifamily project and its 
occupants. For the purposes of this subsection, the Secretary 
is authorized in his discretion and under such terms and 
conditions as he may prescribe to permit one-family units and 
interests in common areas and facilities in multifamily 
projects covered by mortgages insured under any section of this 
Act other than section 213(a) (1) and (2) to be released from 
the liens of those mortgages.

           *       *       *       *       *       *       *

     (g) Any mortgagee under a mortgage insured under 
subsection (c) of this section is entitled to receive the 
benefits of the insurance as provided in section 204(a) of this 
Act with respect to mortgages insured under section 203, and 
the provisions of subsections (b), (c), (d), (e), (f), (g), 
(h), (j), and (k) of section 204 shall be applicable to the 
mortgages insured under subsection (c) of this section[, except 
that (1) all references in section 204 of the Mutual Mortgage 
Insurance Fund or the Fund shall be construed to refer to the 
General Insurance Fund, (2) all references therein to section 
203 shall be construed to refer to subsection (c) of this 
section, and (3) the excess remaining, referred to in section 
204(f)(1), shall be retained by the Secretary and credited to 
the General Insurance Fund.].

           *       *       *       *       *       *       *


                 [special mortgage insurance assistance

     [Sec. 237. (a) The purpose of this section is to help 
provide adequate housing for families of low and moderate 
income, including those who, for reasons of credit history, 
irregular income patterns caused by seasonal employment, or 
other factors, are unable to meet the credit requirements of 
the Secretary for the purchase of a single-family home financed 
by a mortgage insured under section 203, 220, 221, 234, or 
235(j)(4), but who, through the incentive of homeownership and 
counseling assistance, appear to be able to achieve 
homeownership.
     [(b) The Secretary is authorized upon application by the 
mortgagee to insure under this section not more than 26 percent 
of the total principal obligation (including such initial 
service charges, and such appraisal, inspection, and other fees 
as the Secretary shall approve) of any mortgage meeting the 
requirements of this section.
     [(c) To be eligible for insurance under this section, a 
mortgage shall--
          [(1) meet the requirements of section 203 (except 
        subsection (m)), 220(d)(3)(A), 221(d)(2), 221(h)(5), 
        221(i), 234(c), or 235(j)(4), except as such 
        requirements are modified by this section;
          [(2) involve a principal obligation (including such 
        initial service charges, and such appraisal, 
        inspection, and other fees, as the Secretary shall 
        approve) in an amount not to exceed $70,000;
          [(3) be executed by a mortgagor who the Secretary has 
        determined, after a full and complete study of the 
        case, would not be an acceptable credit risk for 
        mortgage insurance purposes under sections 203, 220, 
        221, 234, or 235(j)(4), because of his credit standing, 
        debt obligations, total annual income, or income 
        characteristics but who the Secretary is satisfied 
        would be a reasonably satisfactory credit risk, 
        consistent with the objectives stated in subsection 
        (a), if he were to receive budget, debt management, and 
        related counseling, prior to and during the 12 months 
        immediately following the purchase of the property, 
        from a community development financial institution 
        under section 103(5) of the Community Development 
        Banking and Financial Institutions Act of 1994: 
        Provided, That, in determining whether the mortgagor is 
        a reasonably satisfactory credit risk, the Secretary 
        shall review the credit history of the applicant giving 
        special consideration to those delinquent accounts 
        which were ultimately paid by the applicant and to 
        extenuating factors which may have caused credit 
        accounts of the applicant to become delinquent; and the 
        Secretary shall also give special consideration to 
        income characteristics of applicants whose total income 
        over the two years prior to their applications has 
        remained at levels of eligibility (as required under 
        paragraph (4) of this subsection), but who, because of 
        the character of their seasonal employment or for other 
        reasons, have not maintained continuous employment 
        under one employer during that time;
          [(4) require monthly payments which, in combination 
        with local real estate taxes on the property involved, 
        do not exceed 36 per centum of the applicant's income, 
        based on his average monthly income during the year 
        prior to his application or the average monthly income 
        during the three years prior to his application, 
        whichever is higher; and
          [(5) require the mortgagor to be subject, if 
        necessary, to a default mitigation effort undertaken by 
        an intermediary community development financial 
        institution under section 103(5) of the Community 
        Development Banking and Financial Institutions Act of 
        1994, that is acting as a sponsor and pass-through of 
        insurance under section 203 and is approved by the 
        Secretary;
          [(6) involve a total principal obligation (including 
        such initial service charges, and such appraisal, 
        inspection, and other fees as the Secretary shall 
        approve) that is not more than 90 percent of the value 
        of the property for which the mortgage is provided; and
          [(7) involve a total principal obligation (including 
        such initial service charges, and such appraisal, 
        inspection, and other fees as the Secretary shall 
        approve) in which the mortgagor has equity (as defined 
        by the Secretary) of not less than 10 percent and such 
        equity shall be subordinate to the interest of the 
        Secretary in the mortgaged property.
     [(d) The Secretary shall give preference in approving 
mortgage insurance applications and in providing counseling 
services under this section (1) to families which are eligible 
for assistance payments under section 235, (2) to families 
living in empowerment zones and enterprise communities (as 
those terms are defined in section 1393(b) of the Internal 
Revenue Code of 1986 (26 U.S.C. 1393(b)) who are eligible for 
homeownership assistance, and (3) to families living in public 
housing units, especially those families required to leave 
public housing because their incomes have risen beyond the 
maximum prescribed income limits, and families eligible for 
residence in public housing who have been displaced from 
federally assisted urban renewal areas.
     [(e) The Secretary is authorized to provide, or contract 
with community development financial institutions under section 
103(5) of the Community Development Banking and Financial 
Institutions Act of 1994 to provide, such budget, debt 
management, and related counseling services to mortgagors whose 
mortgages are insured under this section as he determines to be 
necessary to meet the objectives of this section. The Secretary 
may also provide such counseling to otherwise eligible families 
who lack sufficient funds to supply a down payment to help them 
to save an amount necessary for that purpose.
     [(f) The aggregate principal balance of the portions of 
mortgages insured under this section and outstanding at one 
time shall not exceed $200,000,000.
  [(g) Mortgages insured under this section shall be subject to 
an insurance premium fee of not more than 1.25 percent of the 
total mortgage principal obligation (including such initial 
service charges, and such appraisal, inspection, and other fees 
as the Secretary shall approve).
  [(h) Before insuring a mortgage under this section, the 
Secretary shall enter into such contracts or other agreements 
as may be necessary to ensure that the mortgagee or other 
holder of the mortgage shall assume not less than 10 percent 
and not more than 50 percent of any loss on the insured 
mortgage, subject to any reasonable limit on the liability of 
the mortgagee or holder of the mortgage that may be specified 
in the event of unusual or catastrophic losses that may be 
incurred by any one mortgagee or mortgage holder.
  [(i) No guarantees may be issued under section 306(g) for the 
timely payment of interest or principal on securities backed, 
in whole or in part, by mortgages insured under this section.
     [(j) There are authorized to be appropriated such sums as 
may be necessary to carry out the provisions of subsection (e) 
of this section.]

           *       *       *       *       *       *       *


                [GRADUATED PAYMENT AND INDEXED MORTGAGES

     [Sec. 245. (a) The Secretary may insure under any 
provision of this title mortgages and loans with provisions of 
varying rates of amortization corresponding to anticipated 
variations in family income or with monthly payments and 
outstanding balances adjusted by a percentage change in a 
selected price index to the extent he determines such mortgages 
or loans (1) have promise for expanding housing opportunities 
or meet special needs, (2) can be developed to include any 
safeguards for mortgagors or purchasers that may be necessary 
to offset special risks of such mortgages, and (3) have a 
potential for acceptance in the private market. Notwithstanding 
any other provision of this title, except as provided in 
subsections (b) and (c) of this section, the principal 
obligation (including all interest to be deferred and added to 
principal) of a mortgage insured pursuant to this section may 
not exceed 97 per centum of the appraised value of the property 
covered by the mortgage as of the date the mortgage is accepted 
for insurance.
     [(b) Notwithstanding the provisions of subsection (a), the 
Secretary may insure under any provision of this title a 
mortgage or loan which meets the requirements of the first 
sentence of subsection (a) and which has provisions for varying 
rates of amortization if the Secretary determines--
          [(1) the mortgagor could not reasonably afford to 
        purchase the dwelling unit by means of a mortgage 
        insured under subsection (a) or any other mortgage 
        insurance program under this title;
          [(2) the principal obligation of the mortgage or loan 
        initially does not exceed the percentage of the initial 
        appraised value of the property specified in section 
        203(b) of this title as of the date the mortgage or 
        loan is accepted for insurance;
          [(3) the principal obligation of the mortgage or loan 
        thereafter (including all interest to be deferred and 
        added to principal) will not at any time be scheduled 
        to exceed 97 per centum of the projected value of the 
        property; and
          [(4) the principal obligation of the mortgage 
        thereafter will not exceed 113 per centum of the 
        initial appraised value of the property.
Mortgage insurance under this subsection shall be limited to 
mortgages executed by mortgagors who, as determined by the 
Secretary, have not owned dwelling units within the preceding 
three years. For the purpose of this subsection, the projected 
value of the property shall be calculated by the Secretary by 
increasing the initial appraised value of the property at a 
rate not in excess of 2\1/2\ per centum per annum. The number 
of mortgages which are insured in accordance with this 
subsection in any fiscal year may not exceed (A) that number of 
mortgages the aggregate initial principal obligation of which 
equals 10 per centum of the aggregate amount of the initial 
principal obligation of all mortgages secured by properties 
improved by one- to four-family residences which are insured 
under this title during the preceding fiscal year, or (B) 
50,000 mortgages, whichever is greater. No loan or mortgage may 
be insured under this subsection after the date of the 
enactment of the Housing and Community Development Act of 1987, 
except pursuant to a commitment to insure entered into on or 
before such date.
     [(c) Notwithstanding the provisions of subsection (a), the 
Secretary may insure under any provision of this title a 
mortgage or loan that meets the requirements of the first 
sentence of subsection (a) and that has provisions permitting 
adjustment of monthly payments and outstanding principal 
according to changes or percentages of changes in a selected 
price index if the Secretary determines--
          [(1) the principal obligation of the mortgage or loan 
        initially does not exceed the percentage of the initial 
        appraised value of the property specified in section 
        203(b) as of the date the mortgage or loan is accepted 
        for insurance; and
          [(2) the monthly payments and principal obligation of 
        the mortgage or loan thereafter will not at any time be 
        increased at a rate greater than the percentage change 
        in the price index stipulated in the initial mortgage 
        or loan contract.
In carrying out this subsection, the Secretary shall give a 
priority to mortgages executed by mortgagors who, as determined 
by the Secretary, have not owned dwelling units within the 
preceding 3 years. The Secretary shall, not later than March 
31, 1984, prescribe regulations establishing guidelines 
governing mortgages and loans described in this subsection and 
shall, to the extent practicable, conduct a demonstration 
program to insure mortgages and loans in accordance with this 
subsection during fiscal years 1984 and 1985. The aggregate 
number of mortgages and loans insured under this subsection and 
section 252 in any fiscal year may not exceed 10 percent of the 
aggregate number of mortgages and loans insured by the 
Secretary under this title during the preceding fiscal year.
     [(d)(1) The Secretary may insure, under any provision of 
this title relating to multifamily housing projects, mortgages 
and loans with provisions of varying rates of amortization 
corresponding to anticipated variations in project income, to 
the extent the Secretary determines such mortgages or loans (A) 
have promise for expanding housing opportunities or meet 
special needs; (B) can be developed to include any safeguards 
for mortgagors, tenants, or purchasers that may be necessary to 
offset special risks of such mortgages; and (C) have a 
potential for acceptances in the private market.
     [(2) Notwithstanding any other provision of this title, 
the principal obligation of a mortgage or loan insured pursuant 
to this subsection--
          [(A) may not exceed initially the percentage of the 
        initial appraised value or replacement cost of the 
        property involved that is required by the provision of 
        this title under which such property is insured; and
          [(B) thereafter (including all interest to be 
        deferred and added to principal) may not at any time be 
        scheduled to exceed 100 percent of the projected value 
        of such property.
     [(3) For purposes of this subsection, the projected value 
of a property shall be calculated by the Secretary by 
increasing the initial appraised value of such property at a 
rate not in excess of 2.5 percent per annum.
     [(e) Any mortgage or loan insured pursuant to this section 
which contains or sets forth any graduated mortgage provisions 
(including but not limited to provisions for adding deferred 
interest to principal) which are authorized under this section 
and applicable regulations, or which have been insured on the 
basis of their being so authorized, shall not be subject to any 
State constitution, statute, court decree, common law, or rule 
of public policy (1) limiting the amount of interest which may 
be charged, taken, received, or reserved, or the manner of 
calculating such interest (including but not limited to 
prohibitions against the charging of interest on interest), if 
such constitution, statute, court decree, common law, or rule 
would not apply to the mortgage or loan in the absence of such 
graduated payment mortgage provisions, or (2) requiring a 
minimum amortization of principal under the mortgage or loan.]

           *       *       *       *       *       *       *


        single-family mortgage insurance on hawaiian home lands

     Sec. 247. (a)  * * *

           *       *       *       *       *       *       *

  (c) Notwithstanding any other provision of this Act, the 
insurance of a mortgage using the authority contained in this 
section shall be the obligation of the [General Insurance Fund 
established in section 519] Mutual Mortgage Insurance Fund. The 
mortgagee shall be eligible to receive the benefits of 
insurance as provided in section 204 with respect to mortgages 
insured pursuant to this section, except that [(1) all 
references in section 204 to the Mutual Mortgage Insurance Fund 
or the Fund shall be construed to refer to the General 
Insurance Fund; and (2)] all references in section 204 to 
section 203 shall be construed to refer to the section under 
which the mortgage is insured.

           *       *       *       *       *       *       *


        single family mortgage insurance on indian reservations

     Sec. 248. (a)  * * *

           *       *       *       *       *       *       *

     (f) Notwithstanding any other provision of this Act, the 
insurance of a mortgage using the authority contained in this 
section shall be the obligation of the [General Insurance Fund 
established in section 519] Mutual Mortgage Insurance Fund. The 
mortgagee shall be eligible to receive the benefits of 
insurance as provided in section 204 with respect to mortgages 
insured pursuant to this section, except that [(1) all 
references in section 204 to the Mutual Mortgage Insurance Fund 
or the Fund shall be construed to refer to the General 
Insurance Fund; and (2)] all references in section 204 to 
section 203 shall be construed to refer to the section under 
which the mortgage is insured.

           *       *       *       *       *       *       *


  INSURANCE OF HOME EQUITY CONVERSION MORTGAGES FOR ELDERLY HOMEOWNERS

     Sec. 255. (a)  * * *

           *       *       *       *       *       *       *

  (d) Eligibility Requirements.--To be eligible for insurance 
under this section, a mortgage shall--
          (1) have been made to a mortgagee approved by the 
        Secretary [as responsible and able to service the 
        mortgage properly];

           *       *       *       *       *       *       *

  (g) Limitation on Insurance Authority.--[The aggregate number 
of mortgages insured under this section may not exceed 
250,000.] In no case may the benefits of insurance under this 
section exceed the maximum dollar amount [established under 
section 203(b)(2) for 1-family residences in the area in which 
the dwelling subject to the mortgage under this section is 
located] limitation established under section 305(a)(2) of the 
Federal Home Loan Mortgage Corporation Act for a 1-family 
residence.

           *       *       *       *       *       *       *

  (i) Protection of Homeowner and Lender.--
          (1) Notwithstanding any other provision of law, and 
        in order to further the purposes of the program 
        authorized in this section, the Secretary shall take 
        any action necessary--
                  (A)  * * *

           *       *       *       *       *       *       *

                  (C) to provide any mortgagee under this 
                section with funds not to exceed the 
                [limitations] limitation in subsection (g) to 
                which the mortgagee is entitled under the terms 
                of the insured mortgage or ancillary contracts 
                authorized in this section.
          (2) Actions under paragraph (1) may include--
                  (A) disbursing funds to the mortgagor or 
                mortgagee from the [General Insurance Fund] 
                Mutual Mortgage Insurance Fund;

           *       *       *       *       *       *       *

  (n) Authority to Insure Home Purchase Mortgage.--
          (1) In general.--Notwithstanding any other provision 
        in this section, the Secretary may insure, upon 
        application by a mortgagee, a home equity conversion 
        mortgage upon such terms and conditions as the 
        Secretary may prescribe, when the primary purpose of 
        the home equity conversion mortgage is to enable an 
        elderly mortgagor to purchase a 1- to 4-family dwelling 
        in which the mortgagor will occupy or occupies one of 
        the units.
          (2) Limitation on principal obligation.--A home 
        equity conversion mortgage insured pursuant to 
        paragraph (1) shall involve a principal obligation that 
        does not exceed the dollar amount limitation determined 
        under section 305(a)(2) of the Federal Home Loan 
        Mortgage Corporation Act for a residence of the 
        applicable size.

           *       *       *       *       *       *       *


TITLE V--MISCELLANEOUS

           *       *       *       *       *       *       *


                establishment of general insurance fund

     Sec. 519. (a)  * * *

           *       *       *       *       *       *       *

     (e) The General Insurance Fund shall not be used for 
carrying out the provisions of sections [203(b) (except as 
provided in section 203(v)), 203(h) and 203(i)] 203, except as 
determined by the Secretary, or the provisions of section 213 
to the extent that they involve mortgages the insurance for 
which is the obligation of the Cooperative Management Housing 
Insurance Fund created by section 213(k), or the provisions of 
sections 223(e), 233(a)(2), 235, 236 and 237; and nothing in 
this section shall apply to or affect mortgages, loans, 
commitments, or insurance under such provisions.

           *       *       *       *       *       *       *


                    TITLE VI--WAR HOUSING INSURANCE

     Sec. 601. As used in this subchapter--
     (a)  * * *
     (b) The term ``mortgagee'' [includes the original lender 
under a mortgage, and his successors and assigns approved by 
the Secretary] has the meaning given such term in section 201; 
and the term ``mortgagor'' includes the original borrower under 
a mortgage and his successors and assigns.

           *       *       *       *       *       *       *

     Sec. 603. (a)  * * *
     (b) To be eligible for insurance under this section a 
mortgage shall--
     (1) have been made to[, and be held by,] a mortgagee 
approved by the Secretary [as responsible and able to service 
the mortgage properly];

           *       *       *       *       *       *       *

     Sec. 611. (a)  * * *
     (b) To be eligible for insurance under this section, a 
mortgage shall--
     (1) have been made to [and be held by] a mortgagee 
approved by the Secretary [as responsible and able to service 
the mortgage properly];

           *       *       *       *       *       *       *


         TITLE VIII--ARMED SERVICES HOUSING MORTGAGE INSURANCE

     Sec. 801. As used in this title--
     (a)  * * *
     (b) The term ``mortgagee'' [includes the original lender 
under a mortgage, and his successors and assigns approved by 
the Secretary] has the meaning given such term in section 201; 
and the term ``mortgagor'' includes the original borrower under 
a mortgage, his successors and assigns.

           *       *       *       *       *       *       *


TITLE IX--NATIONAL DEFENSE HOUSING INSURANCE

           *       *       *       *       *       *       *


     Sec. 903. (a)  * * *
     (b) To be eligible for insurance under this section a 
mortgage shall--
     (1) have been made to[, and be held by,] a mortgagee 
approved by the Secretary [as responsible and able to service 
the mortgage properly];

           *       *       *       *       *       *       *


       TITLE XI--MORTGAGE INSURANCE FOR GROUP PRACTICE FACILITIES

                         insurance of mortgages

     Sec. 1101. (a)  * * *
     (b) To be eligible for insurance under this title, the 
mortgage shall (1) be executed by a mortgagor that is a group 
practice unit or organization or other mortgagor, approved by 
the Secretary, (2) be made to [and held by] a mortgagee 
approved by the Secretary [as responsible and able to service 
the mortgage properly], and (3) cover a property or project 
which is approved for mortgage insurance prior to the beginning 
of construction or rehabilitation and is designed for use as a 
group practice facility or medical practice facility which the 
Secretary finds will be constructed in an economical manner, 
will not be of elaborate or extravagant design or materials, 
and will be adequate and suitable for carrying out the purposes 
of this title. No mortgage shall be insured under this title 
unless it is shown to the satisfaction of the Secretary that 
the applicant would be unable to obtain the mortgage loan 
without such insurance on terms comparable to those specified 
in subsection (c).

           *       *       *       *       *       *       *


                              definitions

     Sec. 1106. For the purposes of this title--
     (1)  * * *

           *       *       *       *       *       *       *

     (8) The term ``mortgagee'' [means the original lender 
under a mortgage, and his or its successors and assigns, and] 
has the meaning given such term in section 201, except that 
such term also includes the holders of credit instruments 
issued under a trust mortgage or deed of trust pursuant to 
which such holders act by and through a trustee named therein.

           *       *       *       *       *       *       *


                            Additional Views

                              ----------                              


                ADDITIONAL VIEWS OF REPRESENTATIVE FRANK

    H.R. 5121 includes a number of important reforms designed 
to reform and rejuvenate the FHA single family loan program, in 
order to restore FHA's role in promoting homeownership. These 
reforms include authorizing zero down payment mortgage loans, 
raising FHA loan limits in high cost areas, and providing more 
flexibility for FHA to offer mortgage loans for subprime 
borrowers. As the committee report notes, these reforms hold 
the promise of offering more attractive loan opportunities for 
many borrowers who are unfortunately now turning to predatory 
loans, for lack of any real alternative.
    There is also a recognition that if FHA is to take greater 
credit risk by offering zero down loans or underwriting loans 
for borrowers with higher credit risk, FHA may have to raise 
FHA premiums in a manner commensurate with such additional 
risk. It is also argued that FHA should be given the authority 
to engage in ``risk-based pricing''--in order to accurately 
price such riskier loans while continuing to offer loans to 
FHA's existing profile of borrowers at competitive fees. As a 
result, H.R. 5121 authorizes higher loan premiums and risk-
based pricing.
    While I recognize that such provisions may be necessary to 
achieve the goals of the bill, I have raised concerns 
throughout the hearing and markup process that FHA premiums 
should not be increased beyond what is needed to address the 
additional risk involved. In particular, with the utilization 
of risk-based pricing, I believe it is important that lower 
income borrowers not be disproportionately impacted by higher 
fees.
    I also believe there should be a mechanism so that 
borrowers whose repayment performance demonstrates they were 
not a higher risk should not pay higher fees indefinitely. In 
particular, in keeping with the Administration's Payment 
Incentives budget proposal, borrowers paying higher premiums 
that make five years of timely mortgage payments should at the 
least have their annual premiums dropped down to the premiums 
charged to more credit-worthy borrowers after such a five-year 
on-time payment period.
    I appreciate the cooperation of the Chair in working to 
address these concerns as this legislation moves forward, and I 
look forward to the legislation being implemented in a manner 
that fully addresses the concerns I have raised.
                                                      Barney Frank.

              ADDITIONAL VIEWS OF HONORABLE MAXINE WATERS

    The Expanding American Homeownership Act of 2006, H.R. 
5121, represents a major achievement by the Committee on 
Financial Services and the Subcommittee on Housing and 
Community Opportunity. Mr. Oxley, Chairman of the Committee on 
Financial Services and Mr. Ney, Chairman, of the Subcommittee 
and its Members both deserve considerable credit for the 
passage of the bill. In addition, the more than 100 cosponsors 
who signed onto H.R. 5121 have played a crucial role in 
advancing this bipartisan legislation. Further, the broad-based 
coalition of support among interest groups makes this a unique 
legislative measure, since there are divergent points of view 
on most substantive legislative initiatives in Congress.
    H.R. 5121 is appropriately named because it will expand 
homeownership opportunities for Americans. There is unequivocal 
evidence that without FHA, many first time home buyers and low 
and moderate income persons would not be able to afford a home. 
Americans had grown accustomed to FHA for mortgage insurance, 
guaranteeing their entry into the coveted arena of homeowners. 
FHA had come to rely on first-time home buyers and low and 
moderate income persons to justify its existence. In the last 
few years, however, FHA watched as its share of the mortgage 
insurance market dwindled and the groups it traditionally 
served disappeared.
    FHA was forced to become the mortgage insurer of last 
resort, rather than the preferred insurer. Without viable FHA 
alternatives, many homebuyers--first-time buyers, minority 
buyers and home buyers with less-than-perfect credit fled FHA 
for the subprime market, leaving many with few safe and 
affordable options. Some have been forced to turn to high-cost 
financing and non-traditional loan products. While these 
options are acceptable for certain borrowers, they can have 
devastating consequences for others. In fact, when we began 
consideration of this bill, the foreclosure rate for non-prime 
loans was approximately twice that of prime loans.
    By providing consumers with choice, H.R. 5121 will provide 
FHA the flexibility to set mortgage insurance premiums 
consistent with the risk of the loan. FHA will now use the 
borrower's total credit score or profile when setting the 
insurance premium. Borrowers who are a low credit risk would 
pay a lower insurance premium, while borrowers who pose a 
higher credit risk would be charged a slightly higher premium. 
As such, FHA will be able to reach deeper into the pool of 
prospective borrowers, while guaranteeing the soundness of the 
FHA fund. In the 35th Congressional District in California that 
I serve, 2,064 loans were insured by FHA in 2001, but only 74 
loans were made in 2005. Similarly, FHA programs have been 
seriously curtailed in just about every region of the country, 
resulting in fewer and fewer home purchases supported by FHA 
programs.
    H.R. 5121 will increase FHA loan limits. In many areas of 
the country, the existing FHA loan limits are lower than the 
cost of new construction or the median home price. In other 
areas, FHA had been priced out of the market. As indicated in 
this Committee report, in 1999, FHA insured 127,000 loans in 
California while a mere 5,000 loans were insured by FHA in 
2005, representing less than 5 percent of the 1999 level. 
Because FHA business diminished dramatically during this 
period, in my view American homeownership did not expand as 
much as possible; the FHA loan limit of $362,790 in Los 
Angeles, California meant that FHA was essentially no longer 
relevant in that housing market.
    Under H.R. 5121, we will expand homeownership opportunities 
for Americans because of several new provisions. Through the 
use of risk-based premiums, FHA will have a considerable amount 
of new flexibility, making it more competitive in today's 
market. Flexibility ondownpayments is also key to allowing many 
persons to consider owning a home. Because cash is hard to raise for 
many Americans for the downpayment, many borrowers never achieve 
homeowner status. That is simply wrong. I believe that when borrowers 
meet all of the other criteria related to homeownership, the individual 
or family should be rewarded with an FHA insured mortgage. Longer 
mortgage terms--40 years-- is one of the reform measures in this bill 
that will provide borrowers with flexibility that they might not 
otherwise have with other products. In addition, the Expanding American 
Homeownership Act of 2006 will increase the number of FHA reverse 
mortgages and condominiums that can be insured. I concur with the views 
contained in the Committee report that characterize FHA's relevance to 
markets in the 21st Century because of the aforementioned reforms.
    As Ranking Member ofthe Subcommittee on Housing and 
Community Opportunity, I strongly believe that H.R. 5121, the 
Expanding American Homeownership Act of 2006 is monumental 
legislation of historic proportion that will lead to the 
modernization of FHA and to expanded homeownership 
opportunities for a new wave of American homeowners. Thank you.

                                                      Maxine Waters

                                  
