[House Report 111-12]
[From the U.S. Government Publishing Office]



111th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES
 1st Session                                                     111-12

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



 
TO MAKE IMPROVEMENTS IN THE HOPE FOR HOMEOWNERS PROGRAM, AND FOR OTHER 
                                PURPOSES

                                _______
                                

 February 10, 2009.--Committed to the Committee of the Whole House on 
            the State of the Union and ordered to be printed

                                _______
                                

 Mr. Frank of Massachusetts, from the Committee on Financial Services, 
                        submitted the following

                              R E P O R T

                              together with

                             MINORITY VIEWS

                        [To accompany H.R. 787]

      [Including cost estimate of the Congressional Budget Office]

      The Committee on Financial Services, to whom was referred 
the bill (H.R. 787) to make improvements in the Hope for 
Homeowners Program, 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..............................................     3
Background and Need for Legislation..............................     3
Hearings.........................................................     5
Committee Consideration..........................................     5
Committee Votes..................................................     5
Committee Oversight Findings.....................................     6
Performance Goals and Objectives.................................     6
New Budget Authority, Entitlement Authority, and Tax Expenditures     6
Committee Cost Estimate..........................................     6
Congressional Budget Office Estimate.............................     6
Federal Mandates Statement.......................................     8
Advisory Committee Statement.....................................     9
Constitutional Authority Statement...............................     9
Applicability to Legislative Branch..............................     9
Earmark Identification...........................................     9
Section-by-Section Analysis of the Legislation...................     9
Changes in Existing Law Made by the Bill, as Reported............    10
Minority Views...................................................    15

                                Amendment

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

SECTION 1. CHANGES TO HOPE FOR HOMEOWNERS PROGRAM.

  Section 257 of the National Housing Act, as added by section 1402(a) 
of Public Law 110-289, (12 U.S.C. 1715z-23) is amended--
          (1) in subsection (e)--
                  (A) by striking paragraph (1) and inserting the 
                following:
          ``(1) Borrower certification.--
                  ``(A) No intentional default or false information.--
                The mortgagor shall provide a certification to the 
                Secretary that the mortgagor has not intentionally 
                defaulted on the existing mortgage or mortgages and has 
                not knowingly, or willfully and with actual knowledge, 
                furnished material information known to be false for 
                the purpose of obtaining any eligible mortgage.
                  ``(B) Liability for repayment.--The mortgagor shall 
                agree in writing that the mortgagor shall be liable to 
                repay to the Secretary any direct financial benefit 
                achieved from the reduction of indebtedness on the 
                existing mortgage or mortgages on the residence 
                refinanced under this section derived from 
                misrepresentations made by the mortgagor in the 
                certifications and documentation required under this 
                paragraph, subject to the discretion of the Oversight 
                Board.''.
                  (B) in paragraph (2)(B), by striking ``90 percent'' 
                and inserting ``93 percent'';
                  (C) by striking paragraph (7);
                  (D) in paragraph (9)--
                          (i) by striking ``by procuring (A) an income 
                        tax return transcript of the income tax returns 
                        of the mortgagor, or(B)'' and inserting ``in 
                        accordance with procedures and standards that 
                        the Board shall establish, which may include 
                        requiring the mortgagee to procure''; and
                          (ii) by striking ``and by any other method, 
                        in accordance with procedures and standards 
                        that the Board shall establish'';
                  (E) by redesignating paragraphs (8), (9), (10), and 
                (11) as paragraphs (7), (8), (9), and (10), 
                respectively; and
                  (F) by adding after paragraph (10) (as so 
                redesignated by subparagraph (E) of this paragraph) the 
                following new paragraph:
          ``(11) Ban on millionaires.--The mortgagor shall not have a 
        net worth, as of the date the mortgagor first applies for a 
        mortgage to be insured under the Program under this section, 
        that exceeds $1,000,000.'';
          (2) in subsection (h)(2), by striking ``, or in any case in 
        which a mortgagor fails to make the first payment on a 
        refinanced eligible mortgage'';
          (3) by striking subsection (i) and inserting the following 
        new subsection:
  ``(i) Annual Premiums.--
          ``(1) In general.--For each refinanced eligible mortgage 
        insured under this section, the Secretary shall establish and 
        collect an annual premium in an amount equal to not less than 
        0.55 percent of the amount of the remaining insured principal 
        balance of the mortgage and not more than 0.75 percent of such 
        remaining insured principal balance, as determined according to 
        a schedule established by the Board that assigns such annual 
        premiums based upon the credit risk of the mortgage.
          ``(2) Reduction or termination during mortgage term.--
        Notwithstanding paragraph (1), the Secretary may provide that 
        the annual premiums charged for refinanced eligible mortgages 
        insured under this section are reduced over the term of the 
        mortgage or that the collection of such premiums is 
        discontinued at some time during the term of the mortgage, in a 
        manner that is consistent with policies for such reduction or 
        discontinuation of annual premiums charged for mortgages in 
        accordance with section 203(c).'';
          (4) in subsection (k)--
                  (A) by striking the subsection heading and inserting 
                ``Exit Fee'' ;
                  (B) in paragraph (1), in the matter preceding 
                subparagraph (A), by striking ``such sale or 
                refinancing'' and inserting ``the mortgage being 
                insured under this section''; and
                  (C) by striking paragraph (2);
          (5) in subsection (s)(3)(A)(ii), by striking ``subsection 
        (e)(1)(B) and such other'' and inserting ``such'';
          (6) in subsection (v), by inserting after the period at the 
        end the following: ``The Board shall conform documents, forms, 
        and procedures for mortgages insured under this section to 
        those in place for mortgages insured under section 203(b) to 
        the maximum extent possible consistent with the requirements of 
        this section.'';
          (7) in subsection (w)(1)(C), by striking ``(e)(4)(A)'' and 
        inserting ``(e)(3)(A)''; and
          (8) by adding at the end the following new subsection:
  ``(x) Payment to Existing Loan Servicer.--The Board may establish a 
payment to the servicer of the existing senior mortgage for every loan 
insured under the HOPE for Homeowners Program in an amount, for each 
such loan, that does not exceed $1,000.''.

                          Purpose and Summary

    H.R. 787 was introduced on February 2, 2009 by Chairman 
Frank. The purpose of the bill is to make reasonable changes 
the ``HOPE for Homeowners'' program established in the Housing 
and Economic Recovery Act (P.L. 110-289) (``HERA'') to reduce 
program fees and remove administration burdens, in order to 
facilitate broader participation in the Program.

                  Background and Need for Legislation

    As the housing and economic crisis has grown, the number of 
mortgage defaults and foreclosures has also grown. In addition 
to having a deleterious effect on the personal and financial 
conditions of the affected homeowner, foreclosures have 
contributed to declining home prices, declining neighborhoods, 
and negative repercussions for the broader economy. The 
response to date to the growing foreclosure crisis has been 
largely limited to loan modifications voluntarily agreed to by 
existing lenders. While this has reduced payments for many 
borrowers, it does not seem to have had any meaningful effect 
in arresting the growth in foreclosures and the decline in 
housing markets.
    As a result, there has been a need for more systematic 
approaches to foreclosure prevention, such as refinancing 
opportunities which involve homeowners having mortgage payments 
reduced to affordable levels. The HOPE for Homeowners program, 
as amended by Emergency Economic Stabilization Act (EESA), has 
been an important step towards such an approach. A wide range 
of sources, however, including former HUD Secretary Preston, 
the Federal Reserve, lenders, and consumer groups, have 
criticized the program because the required fees are too high, 
the mandatory writedown is excessive, and there are too many 
administrative requirements that deviate from standard FHA loan 
requirements. This has prevented optimum use of the program.
    This legislation would address the criticisms and make the 
program easier to use and administer.

                      SUMMARY OF MAJOR PROVISIONS

    The HOPE for Homeowners Program was created by HERA as a 
new voluntary Federal Housing Administration (FHA) single 
family loan program authorizing $300 billion for refinancing 
loans for distressed borrowers. Eligible loans are limited to 
refinancings for which the home is the borrower's principal 
residence. Existing junior lienholders must extinguish their 
loans, and the existing first mortgage holder must write down 
the principal to no more than 90 percent of current market 
value and must also pay the upfront FHA premium. The program 
requires the FHA to collect a variety of fees, and imposes a 
number of additional conditions on the borrower and the 
underwriter. The EESA made changes to the HOPE for Homeowners 
program to: (a) allow for a loan to value (LTV) higher than 90 
percent, (b) permit upfront payments to existing second 
lienholders as an option to induce such holders to extinguish 
their liens, and (c) make the debt to income ratio requirement 
more flexible. Despite the changes made by EESA, only 25 loans 
have been made under the program to date.
    H.R. 787 would amend the HOPE for Homeowners Program 
provisions of the National Housing Act to encourage more 
lenders to participate by reducing the fees and writedowns, 
provide incentives for mortgage servicers to engage in 
modifications under the program, and reduce administrative 
burdens to loan underwriters by making the requirements more 
consistent with standard FHA practices. Specifically, the bill 
would make the following changes:
    Fees. The 3 percent upfront fee is eliminated and the 
annual premium of 1.5 percent of the amount of the remaining 
insured principal balance of the mortgage is reduced to a range 
of between .55 percent and .75 percent, as determined according 
to a schedule established by the program's Board that assigns 
the premium based on the credit risk of the mortgage. The 
elimination of the upfront fee will have a corresponding 
reduction in the required loan writedown by the lender, thus 
addressing a significant barrier to program participation. The 
annual fees are brought more in line with normal FHA standards, 
making it easier to underwrite borrowers for the program. 
Finally, the equity sharing provision in the bill is 
recharacterized as an exit fee, thus ensuring the collection of 
significant fees for all refinanced loans that succeed.
    Profit Sharing. The requirement for the government to keep 
50 percent of property appreciation is eliminated. This 
addresses criticisms both that this provision is too onerous to 
the borrower and that it is excessively burdensome to 
administer. In particular, inconsistent state laws regarding 
profit sharing, combined with lack of clarify regarding 
compliance with federal Truth in Lending Act requirements, have 
deterred lenders from using the program because of this profit 
sharing feature. The bill would eliminate this profit sharing 
requirement (but retain the equity sharing provision, as noted 
above).
    Loan to Value (LTV). The 90 percent LTV limitation, which 
now applies under to the majority of prospective borrowers, is 
increased to 93 percent. This, in combination with the upfront 
fee elimination, should have a meaningful impact in addressing 
a major factor inhibiting program participation--the 
significant required writedown of the loan.
    Payments to Servicers for Successful Refinancings. A number 
of loan modification programs, including the proposed Federal 
Deposit Insurance Corporation plan, recognize the importance of 
adequately compensating and incentivizing mortgage servicers 
for the work necessary to restructure loans. Therefore, this 
legislation authorizes payments to servicers for successful 
refinances under HOPE for Homeowners, subject to a cap of 
$1,000 per loan.
    Administrative Burdens. The legislation includes general 
language requiring the program's Board to make documents, forms 
and procedures conform to those under normal FHA practice to 
the maximum extent possible consistent with statutory 
requirements. The purpose is to reduce paperwork, software 
changes, and other administrative deviations from standard FHA 
underwriting procedures. The legislation also eliminates a non-
affordability requirement that imposed an administrative 
underwriting burden and excluded borrowers experiencing job 
loss or other impairment of income. Finally, the bill 
eliminates other statutory requirements that would not 
otherwise apply to FHA loans, such as liability for first 
payment default and a certification requirement that the 
borrower had not intentionally defaulted under any other non-
mortgage debt.

                                Hearings

    The Committee on Financial Services held a hearing on 
February 3, 2009, entitled ``Promoting Liquidity and Lending 
Through Deposit Insurance, HOPE for Homeowners, and Other 
Enhancements.'' The following witnesses testified: Mr. John 
Bovenzi, Chief Operating Officer, Federal Deposit Insurance 
Corporation; Ms. Meg Burns, Director of the Office of Single 
Family Program Development, U.S. Department of Housing and 
Urban Development; Mr. Edward L. Yingling, President and Chief 
Executive Officer, American Bankers Association; Mr. R. Michael 
S. Menzies, Sr., President and Chief Executive Officer, Easton 
Bank and Trust Company, on behalf of The Independent Community 
Bankers of America; Mr. John Taylor, President and Chief 
Executive, National Community Reinvestment Coalition; Mr. John 
A. Courson, President and Chief Executive Officer, Mortgage 
Bankers Association; Mr. Mike Calhoun, President and Chief 
Operating Officer, Center for Responsible Lending; Mrs. Robin 
Staudt; and Mr. Edward R. Morrison, Professor of Law, Columbia 
Law School.

                        Committee Consideration

    The Committee on Financial Services met in open session on 
February 4, 2009, and ordered H.R. 787, to make improvements in 
the HOPE for Homeowners Program, as amended, favorably reported 
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 in conjunction with the consideration 
of this legislation. A motion by Mr. Frank to report the bill, 
as amended, to the House with a favorable recommendation was 
agreed to by a voice vote.
    During consideration of the bill, the following amendments 
were considered:
    An amendment by Mr. Adler, No. 1, putting a limit on 
payment to existing loan servicers, was agreed to by voice 
vote.
    An amendment by Mrs. Capito, No. 2, regarding protection of 
FHA, VA, and RHS loans appreciation, was offered and withdrawn.
    An amendment by Mr. Frank, No. 3, regarding borrower 
certification, was agreed to by a voice vote.
    An amendment by Mr. Neugebauer, No. 4, terminating the HOPE 
for Homeowners Program, was not agreed to by a voice vote.
    An amendment by Mr. Hensarling, No. 5, regarding suspension 
of new commitments to insure mortgages, was not agreed to by a 
voice vote.
    An amendment by Mr. Hensarling, No. 6, regarding mortgagor 
net worth limitation of $1,000,000, was agreed to by a voice 
vote.
    An amendment by Mr. Hensarling, No. 7, regarding exclusion 
of no-doc loans, exclusion of zero downpayment loans, and 
maximum income for loan considered, was not agreed to by a 
voice vote.
    An amendment by Mr. Hensarling, No. 8, on appreciation, was 
offered and withdrawn.
    An amendment by Ms. Bean, No. 9, reinstating prohibition on 
second mortgages, was offered and withdrawn.

                      Committee Oversight Findings

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

                    Performance Goals and Objectives

    Pursuant to clause 3(c)(4) of rule XIII of the Rules of the 
House of Representatives, the Committee establishes the 
following performance related goals and objectives for this 
legislation:
    Due to excessive fee levels and unnecessary administrative 
burdens required by the program's statute, few HOPE for 
Homeowners loans have been closed to date. H.R. 787 would 
reduce excessive program fees and remove unnecessary 
administration burdens, in order to increase program 
participation more in line with the expectations when the 
program was initially enacted.

   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 of 1974.

                        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, February 9, 2009.
Hon. Barney Frank,
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. 787, a bill to 
make improvements in the Hope of Homeowners program, and for 
other purposes.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Chad Chirico.
            Sincerely,
                                      Douglas W. Elmendorf,
                                                          Director.
    Enclosure.

H.R. 787--A bill to make improvements in the Hope for Homeowners 
        program, and for other purposes

    Summary: H.R. 787 would modify the Hope for Homeowners loan 
guarantee program authorized by the Housing and Economic 
Recovery Act of 2008. The effects on direct spending and 
revenues over the 2009-2013 and 2009-2018 periods are relevant 
for enforcing pay-as-you-go rules under the current budget 
resolution. CBO estimates that enacting this legislation would 
increase deficits by $675 million over the five-year period 
from 2009 through 2013, and by an equal amount over the 2009-
2018 period. Implementing H.R. 787 would not affect spending 
subject to appropriation.
    H.R. 787 contains no intergovernmental or private-sector 
mandates as defined in the Unfunded Mandates Reform Act (UMRA).
    Estimated cost to the Federal Government: The estimated 
cost of H.R. 787 is shown in the following table. The costs of 
this legislation fall within budget function 370 (commerce and 
housing credit).

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                    By fiscal year in millions of dollars--
                                                      --------------------------------------------------------------------------------------------------
                                                        2009   2010   2011   2012   2013   2014   2015   2016   2017   2018   2019  2009-2014  2009-2019
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                               CHANGES IN DIRECT SPENDING

Estimated Budget Authority...........................    304    225    146      0      0      0      0      0      0      0      0       675        675
Estimated Outlays....................................    274    233    154     15      0      0      0      0      0      0      0       675        675
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Basis of estimate: H.R. 787 would make certain changes to 
the Hope for Homeowners loan guarantee program authorized by 
the Housing and Economic Recovery Act of 2008. Those changes, 
which are aimed at increasing the number of loans refinanced 
through the program, include:
           Eliminating the payment of an up-front 
        insurance premium;
           Reducing the annual insurance premium;
           Increasing the maximum loan-to-value ratio 
        of the refinanced mortgage to 93 percent;
           Eliminating the government's share of any 
        appreciation in the homes' value at sale; and
           Authorizing a payment to the servicer of the 
        existing mortgage.
    The Federal Credit Reform Act requires the federal budget 
to record the up-front cost of subsidizing loan guarantees on a 
net-present-value basis. CBO estimates that enacting this 
legislation, which would directly appropriate the subsidy cost 
of loan guarantees, would increase direct spending by $675 
million over the 2009-2019 period.
    To determine this subsidy cost, CBO estimated the volume of 
loans that would be refinanced under this voluntary program and 
the likelihood that borrowers would default on their refinanced 
mortgages. Based on participation in the current Hope for 
Homeowners program, the FHASecure program, and information from 
mortgage industry participants, CBO estimates that as many as 
25,000 additional loans could be refinanced as a result of the 
proposed changes, representing a loan volume of about $5 
billion over the next four years. (As of February 3, 2009, only 
25 loans have been guaranteed under the Hope for Homeowners 
program. In addition, about 4,000 delinquent borrowers 
refinanced their loans under FHASecure over the 16-month 
lifetime of the program.)
    CBO estimates that the program, as modified by the bill, 
would have a subsidy rate of about 15 percent of the loan 
value. This estimated subsidy rate assumes that the cumulative 
default rate for the program would be about 40 percent and that 
recoveries on defaulted mortgages would be about 60 percent of 
the outstanding loan amount. Those rates reflect CBO's view 
that mortgage holders would have an incentive to direct their 
highest-risk loans to the program, and are based on the 
expectation that the underwriting standards established for the 
new program would be less restrictive than those currently in 
place for FHA's single-family loan-guarantee program, thereby 
allowing FHA to insure loans with a greater risk of default.
    Intergovernmental and private-sector impact: H.R. 787 
contains no intergovernmental or private-sector mandates as 
defined in UMRA and would not affect the budgets of state, 
local, or tribal governments.
    Previous CBO estimate: On January 13, 2009, CBO transmitted 
a cost estimate for H.R. 384, the TARP Reform and 
Accountability Act, as introduced in the House of 
Representatives on January 9, 2009. H.R. 787 is similar to the 
HOPE for Homeowner provisions in title V of H.R. 384, and the 
estimated costs are the same.
    Estimate prepared by: Federal Costs: Susanne Mehlman and 
Chad Chirico; Impact on State, Local, and Tribal Governments: 
Lisa Ramirez-Branum; Impact on the Private Sector: Patrick 
Bernhardt.
    Estimate approved by: Peter H. Fontaine, 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.

                         Earmark Identification

    H.R. 787 does not contain any congressional earmarks, 
limited tax benefits, or limited tariff benefits as defined in 
clause 9 of rule XXI.

             Section-by-Section Analysis of the Legislation


Section 1. Changes to HOPE for Homeowners Program

    This section amends Section 257 of the National Housing 
Act, which authorized the HOPE for Homeowners program to:
          1. Remove a requirement that the borrower certify 
        that the borrower has not at any time intentionally 
        defaulted on any other non-mortgage debt;
          2. Eliminate a requirement that the borrower must 
        have had a debt-to-income ratio greater than 31 percent 
        as of March 1, 2008;
          3. Raise the minimum percentage that the program's 
        Board can establish as the maximum loan to value from 
        90 percent to 93 percent;
          4. Eliminate language prohibiting second liens during 
        the first five years of a HOPE for Homeowners loan, 
        except as necessary to ensure maintenance of property 
        standards;
          5. Prohibit loans to borrowers with a net worth of 
        more than $1,000,000;
          6. Eliminate liability of an FHA underwriter for loan 
        losses on loans to borrowers that default on their 
        first payment;
          7. Eliminate the 3 percent upfront FHA premium;
          8. Reduce the annual FHA premium from 1.5 percent of 
        the amount of the remaining insured principal balance 
        of the mortgage to a range of between .55 percent and 
        .75 percent, as determined according to a schedule that 
        assigns the premium based on the credit risk of the 
        mortgage;
          9. Eliminate 50/50 profit sharing of property 
        appreciation over the current market value;
          10. Recharacterize as an exit fee the federal 
        government percentage of the equity created by the 
        refinance, on a scale declining 100 percent for sale or 
        refinance in year 1, to 50 percent after 5 years.
          11. Require the program's Board to conform documents, 
        forms, and procedures to those in place for mortgages 
        insured under Section 203(b) to the maximum extent 
        possible, consistent with the requirements of this 
        legislation; and
          12. Authorize payments to servicers of existing loans 
        for successful refinances of such loans under the 
        program, subject to a cap of $1,000 per loan.

         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 II--MORTGAGE INSURANCE

           *       *       *       *       *       *       *



SEC. 257. HOPE FOR HOMEOWNERS PROGRAM.

  (a) * * *

           *       *       *       *       *       *       *

  (e) Requirements of Insured Mortgages.--To be eligible for 
insurance under this section, a refinanced eligible mortgage 
shall comply with all of the following requirements:
          [(1) Lack of capacity to pay existing mortgage.--
                  [(A) Borrower certification.--
                          [(i) In general.--The mortgagor shall 
                        provide certification to the Secretary 
                        that the mortgagor has not 
                        intentionally defaulted on the mortgage 
                        or any other debt, and has not 
                        knowingly, or willfully and with actual 
                        knowledge, furnished material 
                        information known to be false for the 
                        purpose of obtaining any eligible 
                        mortgage.
                          [(ii) Penalties.--
                                  [(I) False statement.--Any 
                                certification filed pursuant to 
                                clause (i) shall contain an 
                                acknowledgment that any willful 
                                false statement made in such 
                                certification is punishable 
                                under section 1001, of title 
                                18, United States Code, by fine 
                                or imprisonment of not more 
                                than 5 years, or both.
                                  [(II) Liability for 
                                repayment.--The mortgagor shall 
                                agree in writing that the 
                                mortgagor shall be liable to 
                                repay to the Federal Housing 
                                Administration any direct 
                                financial benefit achieved from 
                                the reduction of indebtedness 
                                on the existing mortgage or 
                                mortgages on the residence 
                                refinanced under this section 
                                derived from misrepresentations 
                                made in the certifications and 
                                documentation required under 
                                this subparagraph, subject to 
                                the discretion of the 
                                Secretary.
                  [(B) Current borrower debt-to-income ratio.--
                As of March 1, 2008, the mortgagor shall have 
                had, or thereafter is likely to have, due to 
                the terms of the mortgage being reset, a ratio 
                of mortgage debt to income, taking into 
                consideration all existing mortgages of that 
                mortgagor at such time, greater than 31 percent 
                (or such higher amount as the Board determines 
                appropriate).]
          (1) Borrower certification.--
                  (A) No intentional default or false 
                information.--The mortgagor shall provide a 
                certification to the Secretary that the 
                mortgagor has not intentionally defaulted on 
                the existing mortgage or mortgages and has not 
                knowingly, or willfully and with actual 
                knowledge, furnished material information known 
                to be false for the purpose of obtaining any 
                eligible mortgage.
                  (B) Liability for repayment.--The mortgagor 
                shall agree in writing that the mortgagor shall 
                be liable to repay to the Secretary any direct 
                financial benefit achieved from the reduction 
                of indebtedness on the existing mortgage or 
                mortgages on the residence refinanced under 
                this section derived from misrepresentations 
                made by the mortgagor in the certifications and 
                documentation required under this paragraph, 
                subject to the discretion of the Oversight 
                Board.
          (2) Determination of principal obligation amount.--
        The principal obligation amount of the refinanced 
        eligible mortgage to be insured shall--
                  (A) * * *
                  (B) not exceed [90 percent] 93 percent of the 
                appraised value of the property to which such 
                mortgage relates (or such higher percentage as 
                the Board determines, in the discretion of the 
                Board).

           *       *       *       *       *       *       *

          [(7) Prohibition on second liens.--A mortgagor may 
        not grant a new second lien on the mortgaged property 
        during the first 5 years of the term of the mortgage 
        insured under this section, except as the Board 
        determines to be necessary to ensure the maintenance of 
        property standards; and provided that such new 
        outstanding liens (A) do not reduce the value of the 
        Government's equity in the borrower's home; and (B) 
        when combined with the mortgagor's existing mortgage 
        indebtedness, do not exceed 95 percent of the home's 
        appraised value at the time of the new second lien.]
          [(8)] (7) Appraisals.--Any appraisal conducted in 
        connection with a mortgage insured under this section 
        shall--
                  (A) * * *

           *       *       *       *       *       *       *

          [(9)] (8) Documentation and verification of income.--
        In complying with the FHA underwriting requirements 
        under the HOPE for Homeowners Program under this 
        section, the mortgagee shall document and verify the 
        income of the mortgagor or non-filing status [by 
        procuring (A) an income tax return transcript of the 
        income tax returns of the mortgagor, or(B)] in 
        accordance with procedures and standards that the Board 
        shall establish, which may include requiring the 
        mortgagee to procure a copy of the income tax returns 
        from the Internal Revenue Service, for the two most 
        recent years for which the filing deadline for such 
        years has passed [and by any other method, in 
        accordance with procedures and standards that the Board 
        shall establish].
          [(10)] (9) Mortgage fraud.--The mortgagor shall not 
        have been convicted under Federal or State law for 
        fraud during the 10-year period ending upon the 
        insurance of the mortgage under this section.
          [(11)] (10) Primary residence.--The mortgagor shall 
        provide documentation satisfactory in the determination 
        of the Secretary to prove that the residence covered by 
        the mortgage to be insured under this section is 
        occupied by the mortgagor as the primary residence of 
        the mortgagor, and that such residence is the only 
        residence in which the mortgagor has any present 
        ownership interest.
          (11) Ban on millionaires.--The mortgagor shall not 
        have a net worth, as of the date the mortgagor first 
        applies for a mortgage to be insured under the Program 
        under this section, that exceeds $1,000,000.

           *       *       *       *       *       *       *

  (h) Standards To Protect Against Adverse Selection.--
          (1) * * *
          (2) Exclusion for violations.--The Board shall 
        prohibit the Secretary from paying insurance benefits 
        to a mortgagee who violates the representations and 
        warranties, as established under paragraph (1)[, or in 
        any case in which a mortgagor fails to make the first 
        payment on a refinanced eligible mortgage].

           *       *       *       *       *       *       *

  [(i) Premiums.--For each refinanced eligible mortgage insured 
under this section, the Secretary shall establish and collect--
          [(1) at the time of insurance, a single premium 
        payment in an amount equal to 3 percent of the amount 
        of the original insured principal obligation of the 
        refinanced eligible mortgage, which shall be paid from 
        the proceeds of the mortgage being insured under this 
        section, through the reduction of the amount of 
        indebtedness that existed on the eligible mortgage 
        prior to refinancing; and
          [(2) in addition to the premium required under 
        paragraph (1), an annual premium in an amount equal to 
        1.5 percent of the amount of the remaining insured 
        principal balance of the mortgage.]
  (i) Annual Premiums.--
          (1) In general.--For each refinanced eligible 
        mortgage insured under this section, the Secretary 
        shall establish and collect an annual premium in an 
        amount equal to not less than 0.55 percent of the 
        amount of the remaining insured principal balance of 
        the mortgage and not more than 0.75 percent of such 
        remaining insured principal balance, as determined 
        according to a schedule established by the Board that 
        assigns such annual premiums based upon the credit risk 
        of the mortgage.
          (2) Reduction or termination during mortgage term.--
        Notwithstanding paragraph (1), the Secretary may 
        provide that the annual premiums charged for refinanced 
        eligible mortgages insured under this section are 
        reduced over the term of the mortgage or that the 
        collection of such premiums is discontinued at some 
        time during the term of the mortgage, in a manner that 
        is consistent with policies for such reduction or 
        discontinuation of annual premiums charged for 
        mortgages in accordance with section 203(c).

           *       *       *       *       *       *       *

  (k) [Equity and Appreciation.--] Exit Fee.--
          (1) Five-year phase-in for equity as a result of sale 
        or refinancing.--For each eligible mortgage insured 
        under this section, the Secretary and the mortgagor of 
        such mortgage shall, upon any sale or disposition of 
        the property to which such mortgage relates, or upon 
        the subsequent refinancing of such mortgage, be 
        entitled to the following with respect to any equity 
        created as a direct result of [such sale or 
        refinancing] the mortgage being insured under this 
        section:
                  (A) * * *

           *       *       *       *       *       *       *

          [(2) Appreciation in value.--For each eligible 
        mortgage insured under this section, the Secretary and 
        the mortgagor of such mortgage shall, upon any sale or 
        disposition of the property to which such mortgage 
        relates, each be entitled to 50 percent of any 
        appreciation in value of the appraised value of such 
        property that has occurred since the date that such 
        mortgage was insured under this section.]

           *       *       *       *       *       *       *

  (s) Definitions.--For purposes of this section, the following 
definitions shall apply:
          (1) * * *

           *       *       *       *       *       *       *

          (3) Eligible mortgage.--The term ``eligible 
        mortgage'' means a mortgage--
                  (A) the mortgagor of which--
                          (i) * * *
                          (ii) cannot, subject to [subsection 
                        (e)(1)(B) and such other] such 
                        standards established by the Board, 
                        afford his or her mortgage payments; 
                        and

           *       *       *       *       *       *       *

  (v) Rule of Construction Related to Insurance of Mortgages.--
Except as otherwise provided for in this section or by action 
of the Board, the provisions and requirements of section 203(b) 
shall apply with respect to the insurance of any eligible 
mortgage under this section. The Board shall conform documents, 
forms, and procedures for mortgages insured under this section 
to those in place for mortgages insured under section 203(b) to 
the maximum extent possible consistent with the requirements of 
this section.
  (w) HOPE Bonds.--
          (1) Issuance and repayment of bonds.--Notwithstanding 
        section 504(b) of the Federal Credit Reform Act of 1990 
        (2 U.S.C. 661d(b)), the Secretary of the Treasury 
        shall--
                  (A) * * *

           *       *       *       *       *       *       *

                  (C) use the proceeds from HOPE Bonds only to 
                pay for the net costs to the Federal Government 
                of the HOPE for Homeowners Program, including 
                administrative costs and payments pursuant to 
                subsection [(e)(4)(A)] (e)(3)(A).

           *       *       *       *       *       *       *

  (x) Payment to Existing Loan Servicer.--The Board may 
establish a payment to the servicer of the existing senior 
mortgage for every loan insured under the HOPE for Homeowners 
Program in an amount, for each such loan, that does not exceed 
$1,000.

           *       *       *       *       *       *       *


                             MINORITY VIEWS

    Last July, Congress passed--over the objections of the 
majority of House Republicans--legislation creating the Hope 
for Homeowners program (P.L. 110-289). We were told at the time 
by its sponsors that this legislation would help hundreds of 
thousands of struggling borrowers with negative equity obtain 
more sustainable mortgages guaranteed by the Federal Housing 
Administration (FHA), thereby turning the tide of foreclosures 
and stabilizing housing markets. Some six months later, the 
Hope for Homeowners program has fallen far short of the 
expectations of its proponents, receiving some 400 applications 
and closing on a mere 25 loans.
    H.R. 787, as now estimated by CBO, would improve the 
efficacy of the HOPE for Homeowners program by serving 25,000 
distressed households but at a cost of $670 million dollars, or 
$27,000 per assisted family. We believe that Congress should 
eliminate this program because it is ineffective, costly and 
does not maximize the taxpayer's investment in providing 
foreclosures mitigation to distressed homeowners. Instead, we 
believe that Congress should start anew with private and 
existing public initiatives that have a proven record and will 
not expose taxpayers to costly remedies while doing little to 
improve conditions in the housing market.
    H.R. 787 attempts to ``fix'' the Hope for Homeowners 
program (H4H) and make it a more attractive option for lenders 
and borrowers. But in doing so, the bill negates key provisions 
in the original legislation that were designed to protect 
taxpayers from bearing huge losses when mortgages re-worked 
under the program default. For example, H.R. 787 strikes the 
payment of upfront premiums paid to the Federal Housing 
Administration for providing the government guarantee; 
increases permissible loan-to-value ratios; and cancels the 
government's share of profits in the event of long-term home 
price appreciation. House Republicans believe that before we 
expose taxpayers to the losses that we know are inevitable from 
a government-run foreclosure prevention program, we should 
carefully consider alternatives that do not involve taxpayer 
subsidies or offend the sense of fair play of those millions of 
Americans who have met their obligations.
    Since its inception, we have raised concerns about the 
effectiveness of the Hope for Homeowners program, and as 
predicted this program has been a failure by virtually every 
metric. Rather than cut taxpayer losses, this legislation aims 
to fix a fundamentally unfixable program while abandoning key 
taxpayer safeguards. To further compound the problem, the 
Majority has indicated that it intends to ``marry'' H.R. 787 
with bankruptcy cram-down legislation recently approved by the 
House Judiciary Committee. Cram-down proposals, coupled with 
the Hope for Homeowners program, will place the future of the 
FHA program in jeopardy and do nothing to resolve our current 
housing crisis.

                                   Spencer Bachus.
                                   Shelley Moore Capito.
                                   Scott Garrett.
                                   Kenny Marchant.
                                   Bill Posey.
                                   Randy Neugebauer.
                                   Judy Biggert.
                                   Ron Paul.
                                   Christopher Lee.

                                  
