[House Report 111-476]
[From the U.S. Government Publishing Office]


111th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES
 2d Session                                                     111-476

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



 
                         FHA REFORM ACT OF 2010

                                _______
                                

  May 6, 2010.--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

                            ADDITIONAL VIEWS

                        [To accompany H.R. 5072]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Financial Services, to whom was referred 
the bill (H.R. 5072) to improve the financial safety and 
soundness of the FHA mortgage insurance program, 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..............................................     7
Background and Need for Legislation..............................     7
Hearings.........................................................    10
Committee Consideration..........................................    11
Committee Votes..................................................    11
Committee Oversight Findings.....................................    16
Performance Goals and Objectives.................................    16
New Budget Authority, Entitlement Authority, and Tax Expenditures    16
Committee Cost Estimate..........................................    16
Congressional Budget Office Estimate.............................    16
Federal Mandates Statement.......................................    20
Advisory Committee Statement.....................................    20
Constitutional Authority Statement...............................    20
Applicability to Legislative Branch..............................    20
Earmark Identification...........................................    20
Section-by-Section Analysis of the Legislation...................    20
Changes in Existing Law Made by the Bill, as Reported............    24
Additional Views.................................................    31

                               Amendment

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

SECTION 1. SHORT TITLE.

  This Act may be cited as the ``FHA Reform Act of 2010''.

SEC. 2. MORTGAGE INSURANCE PREMIUMS.

  Subparagraph (B) of section 203(c)(2) of the National Housing Act (12 
U.S.C. 1709(c)(2)(B)) is amended--
          (1) in the matter preceding clause (i)--
                  (A) by striking ``shall'' and inserting ``may''; and
                  (B) by striking ``0.50 percent'' and inserting ``1.5 
                percent''; and
          (2) in clause (ii), by striking ``shall be in an amount not 
        exceeding 0.55 percent'' and inserting ``may be in an amount 
        not exceeding 1.55 percent''.

SEC. 3. INDEMNIFICATION BY MORTGAGEES.

  Section 202 of the National Housing Act (12 U.S.C. 1708) is amended 
by adding at the end the following new subsection:
  ``(i) Indemnification by Mortgagees.--
          ``(1) In general.--If the Secretary determines that a 
        mortgage executed by a mortgagee approved by the Secretary 
        under the direct endorsement program or insured by a mortgagee 
        pursuant to the delegation of authority under section 256 was 
        not originated or underwritten in accordance with the 
        requirements established by the Secretary, and the Secretary 
        pays an insurance claim with respect to the mortgage within a 
        reasonable period specified by the Secretary, the Secretary may 
        require the mortgagee approved by the Secretary under the 
        direct endorsement program or the mortgagee delegated authority 
        under section 256 to indemnify the Secretary for the loss.
          ``(2) Fraud or misrepresentation.--If fraud or 
        misrepresentation was involved in connection with the 
        origination or underwriting, the Secretary may require the 
        mortgagee approved by the Secretary under the direct 
        endorsement program or the mortgagee delegated authority under 
        section 256 to indemnify the Secretary for the loss regardless 
        of when an insurance claim is paid.
          ``(3) Requirements and procedures.--The Secretary shall issue 
        regulations establishing appropriate requirements and 
        procedures governing the indemnification of the Secretary by 
        the mortgagee.''.

SEC. 4. DELEGATION OF INSURING AUTHORITY.

  Section 256 of the National Housing Act (12 U.S.C. 1715z-21) is 
amended--
          (1) by striking subsection (c);
          (2) in subsection (e), by striking ``, including'' and all 
        that follows through ``by the mortgagee''; and
          (3) by redesignating subsections (d) and (e) as subsections 
        (c) and (d), respectively.

SEC. 5. AUTHORITY TO TERMINATE MORTGAGEE ORIGINATION AND UNDERWRITING 
                    APPROVAL.

  Section 533 of the National Housing Act (12 U.S.C. 1735f-11) is 
amended--
          (1) in the first sentence of subsection (b), by inserting 
        ``or areas or on a nationwide basis'' after ``area'' each place 
        such term appears; and
          (2) in subsection (c), by striking ``(c)'' and all that 
        follows through ``The Secretary'' in the first sentence of 
        paragraph (2) and inserting the following:
  ``(c) Termination of Mortgagee Origination and Underwriting 
Approval.--
          ``(1) Termination authority.--If the Secretary determines, 
        under the comparison provided in subsection (b), that a 
        mortgagee has a rate of early defaults and claims that is 
        excessive, the Secretary may terminate the approval of the 
        mortgagee to originate or underwrite single family mortgages 
        for any area, or areas, or on a nationwide basis, 
        notwithstanding section 202(c) of this Act.
          ``(2) Procedure.--The Secretary''.

SEC. 6. DEPUTY ASSISTANT SECRETARY OF FHA FOR RISK MANAGEMENT AND 
                    REGULATORY AFFAIRS.

  (a) Establishment of Position.--Subsection (b) of section 4 of the 
Department of Housing and Urban Development Act (42 U.S.C. 3533(b)) is 
amended--
          (1) by inserting ``(1)'' after ``(b)''; and
          (2) by adding at the end the following new paragraph:
  ``(2) There shall be in the Department, within the Federal Housing 
Administration, a Deputy Assistant Secretary for Risk Management and 
Regulatory Affairs, who shall be appointed by the Secretary and shall 
be responsible to the Federal Housing Commissioner for all matters 
relating to managing and mitigating risk to the mortgage insurance 
funds of the Department and ensuring the performance of mortgages 
insured by the Department.''.
  (b) Termination.--Upon the appointment and confirmation of the 
initial Deputy Assistant Secretary for Risk Management and Regulatory 
Affairs pursuant to section 4(b)(2) of the Department of Housing and 
Urban Development Act, as amended by subsection (a) of this section, 
the position of chief risk officer within the Federal Housing 
Administration, filled by appointment by the Federal Housing 
Commissioner, is abolished.

SEC. 7. USE OF OUTSIDE CREDIT RISK ANALYSIS SOURCES.

  Section 202 of the National Housing Act (12 U.S.C. 1708), as amended 
by the preceding provisions of this Act, is further amended by adding 
at the end the following new subsection:
  ``(j) Use of Outside Credit Risk Analysis Sources.--The Secretary may 
obtain the services of, and enter into contracts with, private and 
other entities outside of the Department in--
          ``(1) analyzing credit risk models and practices employed by 
        the Department in connection with such mortgages;
          ``(2) evaluating underwriting standards applicable to such 
        mortgages insured by the Department; and
          ``(3) analyzing the performance of lenders in complying with, 
        and the Department in enforcing, such underwriting 
        standards.''.

SEC. 8. REVIEW OF MORTGAGEE PERFORMANCE.

  Section 533 of the National Housing Act (12 U.S.C. 1735f-11) is 
amended--
          (1) in subsection (a), by inserting after the period at the 
        end the following: ``For purposes of this subsection, the term 
        `early default' means a default that occurs within 24 months 
        after a mortgage is originated or such alternative appropriate 
        period as the Secretary shall establish.'';
          (2) in subsection (b), by inserting after the period at the 
        end of the first sentence the following: ``The Secretary shall 
        also identify which mortgagees have had a significant or rapid 
        increase, as determined by the Secretary, in the number or 
        percentage of early defaults and claims on such mortgages, with 
        respect to all mortgages originated by the mortgagee or 
        mortgages on housing located in any particular geographic area 
        or areas.''; and
          (3) by adding at the end the following new subsections:
  ``(d) Sufficient Resources.--There is authorized to be appropriated 
to the Secretary for each of fiscal years 2010 through 2014 the amount 
necessary to provide additional full-time equivalent positions for the 
Department, or for entering into such contracts as are necessary, to 
conduct reviews in accordance with the requirements of this section and 
to carry out other responsibilities relating to ensuring the safety and 
soundness of the Mutual Mortgage Insurance Fund.
  ``(e) Reporting to Congress.--Not later than 90 days after the date 
of enactment of the FHA Reform Act of 2010 and not less often than 
annually thereafter, the Secretary shall make available to the 
Committee on Financial Services of the House of Representatives and the 
Committee on Banking, Housing, and Urban Affairs of the Senate any 
information and conclusions pursuant to the reviews required under 
subsection (a). Such report shall not include detailed information on 
the performance of individual mortgages.''.

SEC. 9. USE OF NATIONWIDE MORTGAGE LICENSING SYSTEM AND REGISTRY.

  (a) Use by Mortgagees, Officers, and Owners; Use for Insured 
Mortgages.--
          (1) Mortgagees, officers, and owners.--Section 202 of the 
        National Housing Act (12 U.S.C. 1708), as amended by the 
        preceding provisions of this Act, is further amended by adding 
        at the end the following new subsections:
  ``(k) Use of Nationwide Mortgage Licensing System and Registry for 
Mortgagees, Officers, and Owners.--The Secretary may require, as a 
condition for approval of a mortgagee by the Secretary to originate or 
underwrite mortgages on single family that are insured by the 
Secretary, that the mortgagee--
          ``(1) obtain and maintain a unique company identifier 
        assigned by the Nationwide Mortgage Licensing System and 
        Registry, as established by the Conference of State Bank 
        Supervisors and the American Association of Residential 
        Mortgage Regulators; and
          ``(2) obtain and maintain, as relates to any and all officers 
        or owners of the mortgagee who are subject to the requirements 
        of the S.A.F.E. Mortgage Licensing Act of 2008, or are 
        otherwise required to register with the Nationwide Mortgage 
        Licensing System and Registry, the unique identifier assigned 
        by the Nationwide Mortgage Licensing System and Registry, as 
        established by the Conference of State Bank Supervisors and the 
        American Association of Residential Mortgage Regulators.''.
          (2) Insured mortgages.--Section 203 of the National Housing 
        Act (12 U.S.C. 1709) is amended by adding at the end the 
        following new subsection:
  ``(y) Use of Nationwide Mortgage Licensing System and Registry for 
Insured Loans.--The Secretary may require each mortgage insured under 
this section to include the unique identifier (as such term is defined 
in section 1503 of the S.A.F.E. Mortgage Licensing act of 2008 (12 
U.S.C. 5102)) and any unique company identifier assigned by the 
Nationwide Mortgage Licensing System and Registry, as established by 
the Conference of State Bank Supervisors and the American Association 
of Residential Mortgage Regulators.''.
  (b) Coordination With State Regulatory Agencies.--Section 202 of the 
National Housing Act (12 U.S.C. 1708), as amended by the preceding 
provisions of this Act, is further amended by adding at the end the 
following new subsection:
  ``(l) Information Sharing With State Regulatory Agencies.--
          ``(1) Joint protocol on information sharing.--The Secretary 
        shall, through consultation with State regulatory agencies, 
        pursue protocols for information sharing, including the 
        appropriate treatment of confidential or otherwise restricted 
        information, regarding either actions described in subsection 
        (c)(3) of this section or disciplinary or enforcement actions 
        by a State regulatory agency or agencies against a mortgagee 
        (as such term is defined in subsection (c)(7)).
          ``(2) Coordination.--To the greatest extent possible, the 
        Secretary and appropriate State regulatory agencies shall 
        coordinate disciplinary and enforcement actions involving 
        mortgagees (as such term is defined in subsection (c)(7)).''.

SEC. 10. REPORTING OF MORTGAGEE ACTIONS TAKEN AGAINST OTHER MORTGAGEES.

  Section 202 of the National Housing Act (12 U.S.C. 1708(e)), as 
amended by the preceding provisions of this Act, is further amended by 
adding at the end the following new subsection:
  ``(m) Notification of Mortgagee Actions.--The Secretary shall require 
each mortgagee, as a condition for approval by the Secretary to 
originate or underwrite mortgages on single family or multifamily 
housing that are insured by the Secretary, if such mortgagee engages in 
the purchase of mortgages insured by the Secretary and originated by 
other mortgagees or in the purchase of the servicing rights to such 
mortgages, and such mortgagee at any time takes action to terminate or 
discontinue such purchases from another mortgagee based on any 
determination, evidence, or report of fraud or material 
misrepresentation in connection with the origination of such mortgages, 
the mortgagee shall, not later than 15 days after taking such action, 
shall notify the Secretary of the action taken and the reasons for such 
action.''.

SEC. 11. ANNUAL ACTUARIAL STUDY AND QUARTERLY REPORTS ON MUTUAL 
                    MORTGAGE INSURANCE FUND.

  Subsection (a) of section 202 of the National Housing Act (12 U.S.C. 
1708(a)) is amended--
          (1) in the second sentence of paragraph (4), by inserting 
        before the period at the end the following: ``, any changes to 
        the current or projected safety and soundness of the Fund since 
        the most recent report under this paragraph or paragraph (5), 
        and any risks to the Fund''; and
          (2) in paragraph (5)--
                  (A) in subparagraph (D), by striking ``and'' at the 
                end;
                  (B) in subparagraph (E), by striking the period at 
                the end and inserting ``; and'';
                  (C) by adding at the end the following:
                  ``(F) any other factors that are likely to have an 
                impact on the financial status of the Fund or cause any 
                material changes to the current or projected safety and 
                soundness of the Fund since the most recent report 
                under paragraph (4).
        The Secretary may include in the report under this paragraph 
        any recommendations not made in the most recent report under 
        paragraph (4) that may be needed to ensure that the Fund 
        remains financially sound.''.

SEC. 12. REVIEW OF DOWNPAYMENT REQUIREMENTS.

  Section 205 of the National Housing Act (12 U.S.C. 1711) is amended 
by adding at the end the following new subsection:
  ``(g) Review of Downpayment Requirements.--If, at any time when the 
capital ratio (as such term is defined in subsection (f)) of the Mutual 
Mortgage Insurance Fund does not comply with the requirement under 
subsection (f)(1), the Secretary establishes a cash investment 
requirement, for all mortgages or mortgagors or with respect to any 
group of mortgages or mortgagors, that exceeds the minimum percentage 
or amount required under section 203(b)(9), thereafter upon the capital 
ratio first complying with the requirement under subsection (f)(1) the 
Secretary shall review such cash investment requirement and, if the 
Secretary determines that such percentage or amount may be reduced 
while maintaining such compliance, the Secretary shall subsequently 
reduce such requirement by such percentage or amount as the Secretary 
considers appropriate.''.

SEC. 13. DEFAULT AND ORIGINATION INFORMATION BY LOAN SERVICER AND 
                    ORIGINATING DIRECT ENDORSEMENT LENDER.

  (a) Collection of Information.--Paragraph (2) of section 540(b) of 
the National Housing Act (12 U.S.C. 1712 U.S.C. 1735f-18(b)(2)) is 
amended by adding at the end the following new subparagraph:
                  ``(C) For each entity that services insured 
                mortgages, data on the performance of mortgages 
                originated during each calendar quarter occurring 
                during the applicable collection period, disaggregated 
                by the direct endorsement mortgagee from whom such 
                entity acquired such servicing.''.
  (b) Applicability.--Information described in subparagraph (C) of 
section 540(b)(2) of the National Housing Act, as added by subsection 
(a) of this section, shall first be made available under such section 
540 for the applicable collection period (as such term is defined in 
such section) relating to the first calendar quarter ending after the 
expiration of the 12-month period that begins on the date of the 
enactment of this Act.

SEC. 14. THIRD PARTY SERVICER OUTREACH.

  (a) Authority.--The Secretary of Housing and Urban Development may, 
to the extent any amounts for fiscal year 2010 or 2011 are made 
available in advance in appropriation Acts for reimbursements under 
this section, provide reimbursement to servicers of covered mortgages 
(as such term is defined in subsection (e)) for costs of obtaining the 
services of independent third parties meeting the requirements under 
subsection (b) of this section to make in-person contact with 
mortgagors under covered mortgages whose payments under such mortgages 
are 60 or more days past due, solely for the purposes of providing 
information to such mortgagors regarding--
          (1) available counseling by housing counseling agencies 
        approved by the Secretary ; and
          (2) available mortgage loan modification, refinance, and 
        assistance programs.
  (b) Qualified Independent Third Parties.--An independent third party 
meets the requirements of this subsection if the third party--
          (1) is an entity, including a housing counseling agency 
        approved by the Secretary, that meets standards, 
        qualifications, and requirements (including regarding 
        foreclosure prevention training, quality monitoring, 
        safeguarding of non-public information) established by the 
        Secretary for purposes of this section for in-person contact 
        about available mortgage loan modification, refinance, and 
        assistance programs; and
          (2) does not charge any fees or require other payments, 
        directly or indirectly, from any mortgagor for making in-person 
        contact and providing information and documents under this 
        section.
  (c) Treatment of Personal, Non-Public, and Confidential 
Information.--An independent third party whose services are obtained 
using amounts made available for use under this section and the 
mortgage servicer obtaining such services shall not use, disclose, or 
distribute any personal, non-public, or confidential information about 
a mortgagor obtained during an in-person contact with the mortgagor, 
except for purposes of engaging in the process of modification or 
refinance of the covered mortgage.
  (d) Date of Contact and Disclosures.--Each independent third party 
whose services are obtained by a mortgage servicer using amounts made 
available for use under this section shall--
          (1) initiate in-person contact with a mortgagor not later 
        than 10 days after the date upon which payments under the 
        covered mortgage of the mortgagor become 60 days past due; and
          (2) upon making in-person contact with a mortgagor, provide 
        the mortgagor with a written document that discloses--
                  (A) the name of, and contact information for, the 
                independent third party and the mortgage servicer;
                  (B) that the independent third party has contracted 
                with the mortgage servicer to provide the in-person 
                contact at no charge to the mortgagor;
                  (C) that the independent third party is an agent of 
                the mortgage servicer;
                  (D) that the in-person contact with the mortgagor 
                consists of providing information about available 
                counseling by a housing counseling agency approved by 
                the Secretary and available mortgage loan modification, 
                refinance, and assistance programs;
                  (E) that the independent third party and the mortgage 
                servicer are prohibited from the use, disclosure, or 
                distribution of personal, non-public, and confidential 
                information about the mortgagor, obtained during the 
                in-person contact, except for purposes of engaging in 
                the process of modification or refinance of the covered 
                mortgage;
                  (F) any other information that the Secretary 
                determines should be disclosed.
  (e) Definition of Covered Mortgage.--For purposes of this section, 
the term ``covered mortgage'' means a mortgage on a 1- to 4-family 
residence insured under the provisions of subsection (b) or (k) of 
section 203, section 234(c), or 251 of the National Housing Act (12 
U.S.C. 1709, 1715y, 1715z-16).

SEC. 15. GAO REPORTS ON FHA AND GINNIE MAE.

  Not later than the expiration of the 12-month period beginning on the 
date of the enactment of this Act, the Comptroller General of the 
United States shall submit to the Congress the following reports:
          (1) FHA report.--A report on the single family mortgage 
        insurance programs of the Secretary of Housing and Urban 
        Development and the Mutual Mortgage Insurance Fund established 
        under section 202(a) of the National Housing Act (12 U.S.C. 
        1708(a)) that--
                  (A) analyzes such Fund, the economic net worth, 
                capital ratio, and unamortized insurance-in-force (as 
                such terms are defined in section 205(f)(4) of such Act 
                (12 U.S.C. 1711(f)(4))) of such Fund, the risks to the 
                Fund, how the capital ratio of the Fund affects the 
                mortgage insurance programs under the Fund and the 
                broader housing market, the extent to which the housing 
                markets are more dependent on mortgage insurance 
                provided through the Fund since the financial crisis 
                began in 2008, and the exposure of the taxpayers for 
                obligations of the Fund;
                  (B) analyzes the methodology of the capital ratio for 
                the Fund under section 205(f) of such Act and examines 
                other alternative methodologies with respect to which 
                methodology is most appropriate to meet the operational 
                goals of the Fund under section 202(a)(7);
                  (C) analyzes the effects of the increases in the 
                limits on the maximum principal obligation of mortgages 
                made by the FHA Modernization Act of 2008 (title I of 
                division B of Public Law 110-289), section 202 of the 
                Economic Stimulus Act of 2008 (Public Law 110-185; 122 
                Stat. 620), section 1202 of division A of the American 
                Recovery and Reinvestment Act of 2009 (Public Law 111-
                5; 123 Stat. 225), and section 166 of the Continuing 
                Appropriations Resolution, 2010 (as added by section 
                104 of division B of Public Law 111-88; 123 Stat. 
                29723) on--
                          (i) the risks to and safety and soundness of 
                        the Fund;
                          (ii) the impact on the affordability and 
                        availability of mortgage credit for borrowers 
                        for loans authorized under such higher loan 
                        limits;
                          (iii) the private market for residential 
                        mortgage loans that are not insured by the 
                        Secretary of Housing and Urban Development; and
                          (iv) the Federal National Mortgage 
                        Association and the Federal Home Loan Mortgage 
                        Corporation; and
                  (D) analyzes the impact on affordability to FHA 
                borrowers, and the impact to the Fund, of seller 
                concessions or contributions to a borrower purchasing a 
                residence using a mortgage that is insured by the 
                Secretary.
          (2) Ginnie mae.--A report on the Government National Mortgage 
        Association that identifies--
                  (A) the volume and share of the residential mortgage 
                market that consists of mortgages that back securities 
                for which the payment for principal and interest is 
                guaranteed by such Association and how the Association 
                has been affected by the economic recession, credit 
                crisis, and downturn in the housing markets occurring 
                during 2008, 2009, and 2010;
                  (B) the capacity of the Association to manage the 
                volume of business it conducts and securities it 
                guarantees, particularly with regard to the recent 
                dramatic increase in such volume, including the ability 
                of the Association to conduct appropriate oversight of 
                contractors and issuers of securities for which the 
                payment of principal and interest is guaranteed by the 
                Association and to determine whether the 
                characteristics of various mortgage products constitute 
                appropriate collateral for the federally guaranteed 
                securities for which payment of principal and interest 
                is guaranteed by such Association;
                  (C) the impacts, if any, resulting from such 
                increased volume of business conducted by the 
                Association and securities it guarantees and the 
                challenges such increased volume poses to the internal 
                controls of the Association; and
                  (D) the existing capital net worth requirements for 
                aggregators of mortgages that issue securities that are 
                based on or backed by such mortgages and payment of 
                principal and interest on which is guaranteed by such 
                Association and recommends an appropriate required 
                level of net worth for such aggregators and issuers to 
                protect the financial interests of the Federal 
                Government and the taxpayers.

                          Purpose and Summary

    The purpose of H.R. 5072, the ``FHA Reform Act of 2010'' is 
consistent with the Operational Goals of the Mutual Mortgage 
Insurance Fund (MMIF) established under section 205 of the 
National Housing Act: (a) to minimize the default risk to the 
MMIF and to homeowners; and (b) to meet the housing needs of 
the borrowers that the Federal Housing Administration (FHA) 
single family program is designed to serve.
    Specifically, the Act empowers FHA to increase its capital 
reserves by providing FHA with the authority to raise the 
annual mortgage insurance premium for new borrowers from the 
current cap of 0.55 percent to 1.55 percent for borrowers with 
mortgages at or below 95 percent of value and from 0.50 to 1.50 
percent for borrowers with mortgages below 95 percent of value. 
At the same time, the Act protects the affordability of FHA 
mortgage insurance by providing that if FHA institutes an 
increased downpayment requirement for borrowers when the MMIF 
is below the two percent mandated under section 202 of the 
National Housing Act, FHA review that requirement when the MMIF 
again complies with the two percent reserve mandate and 
subsequently reduce the increased downpayment requirement for 
borrowers if compliance with section 202 can be maintained.
    The Act also provides FHA with enhanced authority to reduce 
default risk to the MMIF by (a) strengthening FHA's ability to 
terminate direct endorsement mortgagees' approval to originate 
or underwrite loans backed by FHA insurance based on poor loan 
performance; (b) strengthening FHA's ability to require 
mortgagees to indemnify FHA for improperly underwritten loans; 
and (c) improving FHA's risk management ability and requiring 
FHA to provide additional data to the public and to Congress on 
mortgagee and loan performance.

                  Background and Need for Legislation


State of the FHA MMIF

    In the latter half of 2009, it became clear that the 
financial position of FHA's MMIF had deteriorated as a result 
of the economic crisis and a decline in home prices. 
Specifically, on November 6, 2009, FHA released the fiscal year 
(FY) 2009 actuarial report, as required under the 1990 
Cranston-Gonzalez Act, which was prepared by Integrated 
Financial Engineering, Inc. (IFE). The report estimated that at 
the end of FY 2009, the total insurance in force (excluding 
Home Equity Conversion Mortgages, or HECMs) was $656.012 
billion, and that the economic value of the fund (excluding 
HECMs) was $2.732 billion.
    Separately, IBM Global Business Services completed an 
actuarial analysis of FHA HECM loans, dated October 12, 2009. 
That report estimated that at the end of FY 2009, the total of 
all outstanding FHA HECM loans was $28.696 billion, and the 
economic value of outstanding HECM loans was $909 million.
    The IFE report on the Fund noted that the economic value of 
the Fund (excluding HECMs) of $2.732 billion declined from FY 
2008's level of $12.908 billion. The report noted that ``the 
decrease is driven mainly by a much more pessimistic national 
housing market forecast,'' including a projected decline in the 
nationwide price average of 9.37 percent over the next year and 
a slower subsequent recovery rate.
    The IFE report also revealed that the combined economic 
value from all FHA loans outstanding at the end of FY 2009 
(including HECMs) was $3.641 billion--which represents a 
capital ratio of 0.53 percent (this ``capital ratio'' is 
defined as the ``economic net worth'' of the Fund under the 
annual audit, expressed as a percentage of total FHA insurance 
in force. `Economic net worth'' is in turn defined as the 
current cash available to the Fund, plus the net present value 
of all future expected FHA cash inflows and outflows). This 
capital ratio of 0.53 percent did not meet the requirements 
provided at section 202 of the National Housing Act, which 
states that the MMIF must maintain a capital ratio of at least 
two percent.
    Though currently the MMIF is below the required two percent 
ratio, the actuarial report projected that the economic value 
of the MMIF (excluding HECMs) would increase from $2.732 
billion in FY 2009 to $7.882 billion at the end of FY 2010, and 
to $41.068 billion by the end of FY 2016. The separate HECM 
actuarial analysis projects that the economic value of HECMs 
will increase from $909 million in FY 2009 to $19.83 billion at 
the end of FY 2016. Under such projections, the combined 
economic value of $60.898 billion in FY 2016 would represent a 
capital ratio of 3.57 percent.
    These calculations represent baseline projections made by 
IFE. However, IFE also projected fund performance under five 
alternative economic scenarios to assess the sensitivity of 
results to key assumptions. Under two of these alternative 
scenarios, the current economic value of the MMIF (excluding 
HECMs) was significantly higher, in both cases exceeding $10 
billion, but under the three other more pessimistic scenarios, 
the economic value of the MMIF was negative. Under the most 
adverse economic scenario, the current economic value of the 
fund would be negative $17.09 billion. However, even under this 
most pessimistic economic scenario, the value of the MMIF was 
projected to become positive in FY 2012.
    Section 205 of the National Housing Act provides that if 
the annual actuarial study determines that the Fund is not 
meeting its Operational Goals or if there is a substantial 
probability that the Fund will not meet its established target 
subsidy rate, the HUD Secretary may either make programmatic 
adjustments as necessary to reduce Fund risk or make 
appropriate premium adjustments.

Actions to restore the MMIF

    Using existing authority, FHA has taken a number of 
administrative and regulatory steps to reduce risks to the Fund 
and meet the requirement for the MMIF to maintain a capital 
ratio of at least two percent. First, for FHA loans for which a 
case number was assigned on or after April 5, 2010, the upfront 
mortgage insurance premium was increased 50 basis points from 
1.75 percent to 2.25 of the loan balance.
    Additional steps taken by FHA include the appointment of a 
Chief Risk Officer; stricter streamlined refinance procedures, 
including new requirements for seasoning, payment history, 
income verification, and capping maximum loan-to-value ratios 
at 125 percent; new appraisal controls, including provisions to 
strengthen appraiser independence and shorten the appraisal 
validity period; raising the net worth requirement of approved 
mortgagees from $250,000 to $1 million (immediately for new 
lender approvals and within one year for existing lenders), and 
at least $1 million plus one percent of total loan volume in 
excess of $25 million within 3 years (with a small business 
lender exemption from this rule, with small lenders now 
required to have a net worth of $500,000); and strengthening 
lender approval requirements, by requiring FHA-approved 
mortgagees to assume liability for all the loans they originate 
or underwrite, including taking responsibility for broker-
originated loans. FHA has also announced its intention to 
pursue a 10 percent downpayment requirement for borrowers with 
FICO scores below 580 (instead of the standard 3.5 percent 
downpayment requirement established under the Housing and 
Economic Recovery Act of 2008, P.L. 110-289) and to reduce 
seller concessions from 6 percent to 3 percent.
    In addition to these administrative and regulatory actions, 
FHA also requested the new legislative authority provided under 
the FHA Reform Act of 2010, which would permit FHA to adjust 
their premium structure in a manner that would increase the 
capital reserve ratio while minimizing the impact on borrowers. 
FHA indicates that they would use the authority provided under 
the Act to raise the annual mortgage insurance premium for new 
borrowers with mortgages at or below 95 percent of value from 
the current cap of 0.55 percent to 1.55 percent and from 0.50 
to 1.50 percent for borrowers with mortgages below 95 percent 
of value. FHA would, at the same time, lower the upfront 
mortgage insurance premium from the interim level of 2.25 
percent of the loan balance to 1.0 percent.
    The Act also seeks to reduce the risk of defaults and 
claims to the MMIF by permitting FHA to provide reimbursements 
to servicers for the costs of obtaining the services of 
independent third parties to make in-person contact with 
mortgagors that are 60 or more days past due under covered 
mortgages, for the purposes of providing information to 
mortgagors regarding the availability of housing counseling, 
loan modifications and refinancing.
    FHA also has recently increased mortgagee enforcement, 
taking action on more than six times as many mortgagees in FY 
2009 than over the FY 2000 to 2008 period combined. Along with 
increased enforcement under FHA's current authority, FHA seeks 
the additional authority provided under the FHA Reform Act of 
2010 to enforce FHA originating and underwriting requirements. 
Specifically, the Act provides FHA with the authority to 
enforce origination and underwriting requirements for direct 
endorsement lenders and would provide FHA with the authority to 
terminate originating or underwriting approval of a mortgagee 
nationwide on the basis of the performance of one of the 
mortgagee's regional branches.
    The FHA Reform Act of 2010 also requires FHA to improve its 
internal reporting systems to better manage risk and to provide 
transparent data to the public and to Congress. This includes 
improving monitoring of early defaults and claims, tracking 
mortgage information by loan servicer, providing FHA with the 
ability to contract out for additional credit risk analysis, 
requiring mortgagees to report to FHA when they stop buying 
loans from other mortgagees and requiring a Government 
Accountability Office study on FHA and Ginnie Mae. The bill 
also creates a new Deputy Assistant Secretary at FHA for Risk 
Management and Regulatory Affairs.
    Taken together, the provisions in the FHA Reform Act of 
2010 seek to strike the right balance between increasing FHA's 
capital reserves and continuing to provide access to all 
borrowers, including minority and first-time homebuyers and 
individuals in underserved communities, along with supporting 
the nation's housing and economic recovery.

                                Hearings

    The Subcommittee on Housing and Community Opportunity held 
a hearing on October 8, 2009, on ``The Future of the Federal 
Housing Administration's Capital Reserves: Assumptions, 
Predictions and Implications for Homebuyers''. The following 
witnesses testified:

                               PANEL ONE

     The Honorable David Stevens, Assistant Secretary 
for Housing and Federal Housing Administration Commissioner, 
U.S. Department of Housing and Urban Development

                               PANEL TWO

     Mr. Patrick Newport, U.S. Economist, IHS Global 
Insight
     Mr. Edward Pinto, Real Estate Financial Services 
Consultant
     Mr. Boyd Campbell, Member, Executive Board of the 
Maryland Association of Realtors, GSE Presidential Advisory 
Group, National Association of Realtors
     Mr. David Kittle, Chairman, Mortgage Bankers 
Association
     Mr. John L. Councilman, CMC, CRMS, Federal Housing 
Committee Chair, National Association of Mortgage Brokers
     Mr. Peter Bell, President, National Reverse 
Mortgage Lenders Association
     Ms. Teresa Bryce, President, Radian Guaranty Inc. 
on behalf of the Mortgage Insurance Companies of America
    The Committee on Financial Services held a hearing on 
December 2, 2009, on ``FY09 FHA Actuarial Report''. The 
following witnesses testified:

                               PANEL ONE

     The Honorable Shaun Donovan, Secretary, U.S. 
Department of Housing and Urban Development

                               PANEL TWO

     Ms. Ann B. Schnare, Partner, Empiris, LLC
     Ms. Janis Bowdler, Deputy Director, Wealth-
Building Policy Project, National Council of La Raza
     Ms. Vicki Cox Golder, President, National 
Association of Realtors
     Mr. Robert E. Story, Jr., CMB, Chairman, Mortgage 
Bankers Association
    The Subcommittee on Housing and Community Opportunity held 
a hearing on March 11, 2010, on ``The FHA Reform Act of 2010''. 
The following witnesses testified:

                               PANEL ONE

     The Honorable David Stevens, Assistant Secretary 
for Housing and Federal Housing Administration Commissioner, 
U.S. Department of Housing and Urban Development

                               PANEL TWO

     Mr. Mike Anderson, President, Essential Mortgage 
and Vice Chair of Government Affairs, National Association of 
Mortgage Brokers
     Ms. Graciela Aponte, Legislative Analyst, Wealth 
Building Policy Project, National Council of La Raza
     Mr. Andrew Caplin, Professor of Economics, Co-
Director of the Center for Experimental Social Science, New 
York University
     Mr. John A. Courson, President and Chief Executive 
Officer, Mortgage Bankers Association
     Mr. Charles McMillan, President, National 
Association of Realtors
     Mr. John Taylor, President and Chief Executive 
Officer, National Community Reinvestment Coalition
     Mr. Mark Alston, First Vice President, 
Consolidated Board of Realtors on behalf of the National 
Association of Real Estate Brokers

                        Committee Consideration

    The Committee on Financial Services met in open session on 
April 22, 2010, and on April 27, 2010, ordered H.R. 5072, the 
FHA Reform Act of 2010, 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. 
During the consideration of the bill, the following amendments 
were disposed of by record votes. The names of Members voting 
for and against follow:
    An amendment by Mr. Garrett (NJ), no. 4, regarding a 
downpayment requirement of 5 percent and prohibition of 
financing of closing costs, was not agreed to by a record vote 
of 12 yeas and 52 nays (Record vote no. FC-106):

                                             RECORD VOTE NO. FC-106
----------------------------------------------------------------------------------------------------------------
         Representative             Aye       Nay     Present     Representative      Aye       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Frank......................  ........        X   .........  Mr. Bachus.......        X   ........  .........
Mr. Kanjorski..................  ........        X   .........  Mr. Castle.......  ........        X   .........
Ms. Waters.....................  ........  ........  .........  Mr. King (NY)....        X
Mrs. Maloney...................  ........        X   .........  Mr. Royce........        X
Mr. Gutierrez..................  ........  ........  .........  Mr. Lucas........        X   ........  .........
Ms. Velazquez..................  ........  ........  .........  Mr. Paul.........        X   ........  .........
Mr. Watt.......................  ........        X   .........  Mr. Manzullo.....  ........        X   .........
Mr. Ackerman...................  ........        X   .........  Mr. Jones........  ........        X   .........
Mr. Sherman....................  ........        X   .........  Mrs. Biggert.....  ........        X   .........
Mr. Meeks......................  ........        X   .........  Mr. Miller (CA)..  ........        X   .........
Mr. Moore (KS).................  ........        X   .........  Mrs. Capito......  ........        X   .........
Mr. Capuano....................  ........        X   .........  Mr. Hensarling...        X   ........  .........
Mr. Hinojosa...................  ........        X   .........  Mr. Garrett (NJ).        X   ........  .........
Mr. Clay.......................  ........        X   .........  Mr. Barrett (SC).  ........  ........  .........
Mrs. McCarthy..................  ........        X   .........  Mr. Gerlach......  ........        X   .........
Mr. Baca.......................  ........        X   .........  Mr. Neugebauer...        X   ........  .........
Mr. Lynch......................  ........        X   .........  Mr. Price (GA)...  ........  ........  .........
Mr. Miller (NC)................  ........        X   .........  Mr. McHenry......        X   ........  .........
Mr. Scott......................  ........        X   .........  Mr. Campbell.....        X   ........  .........
Mr. Green......................  ........        X   .........  Mr. Putnam.......        X   ........  .........
Mr. Cleaver....................  ........        X   .........  Mrs. Bachmann....        X   ........  .........
Ms. Bean.......................  ........        X   .........  Mr. Marchant.....  ........        X   .........
Ms. Moore (WI).................  ........  ........  .........  Mr. McCotter.....  ........        X   .........
Mr. Hodes......................  ........  ........  .........  Mr. McCarthy.....  ........        X   .........
Mr. Ellison....................  ........        X   .........  Mr. Posey........  ........        X   .........
Mr. Klein......................  ........        X   .........  Ms. Jenkins......  ........        X   .........
Mr. Wilson.....................  ........        X   .........  Mr. Lee..........  ........        X   .........
Mr. Perlmutter.................  ........        X   .........  Mr. Paulsen......  ........        X   .........
Mr. Donnelly...................  ........        X   .........  Mr. Lance........  ........        X   .........
Mr. Foster.....................  ........        X   .........
Mr. Carson.....................  ........        X   .........
Ms. Speier.....................  ........        X   .........
Mr. Childers...................  ........        X   .........
Mr. Minnick....................  ........        X   .........
Mr. Adler......................  ........        X   .........
Ms. Kilroy.....................  ........        X   .........
Mr. Driehaus...................  ........        X   .........
Ms. Kosmas.....................  ........        X   .........
Mr. Grayson....................  ........        X   .........
Mr. Himes......................  ........        X   .........
Mr. Peters.....................  ........        X   .........
Mr. Maffei.....................  ........        X   .........
----------------------------------------------------------------------------------------------------------------

    An amendment by Mr. Garrett (NJ), no. 5, regarding a 
downpayment requirement for higher-risk borrowers, was not 
agreed to by a record vote of 16 yeas and 49 nays (Record vote 
no. FC-107):

                                             RECORD VOTE NO. FC-107
----------------------------------------------------------------------------------------------------------------
         Representative             Aye       Nay     Present     Representative      Aye       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Frank......................  ........        X   .........  Mr. Bachus.......        X   ........  .........
Mr. Kanjorski..................  ........        X   .........  Mr. Castle.......  ........        X   .........
Ms. Waters.....................  ........        X   .........  Mr. King (NY)....        X   ........  .........
Mrs. Maloney...................  ........        X   .........  Mr. Royce........        X   ........  .........
Mr. Gutierrez..................  ........  ........  .........  Mr. Lucas........        X   ........  .........
Ms. Velazquez..................  ........  ........  .........  Mr. Paul.........        X   ........  .........
Mr. Watt.......................  ........        X   .........  Mr. Manzullo.....  ........        X   .........
Mr. Ackerman...................  ........        X   .........  Mr. Jones........        X   ........  .........
Mr. Sherman....................  ........        X   .........  Mrs. Biggert.....  ........        X   .........
Mr. Meeks......................  ........        X   .........  Mr. Miller (CA)..  ........        X   .........
Mr. Moore (KS).................  ........        X   .........  Mrs. Capito......  ........        X   .........
Mr. Capuano....................  ........        X   .........  Mr. Hensarling...        X   ........  .........
Mr. Hinojosa...................  ........        X   .........  Mr. Garrett (NJ).        X   ........  .........
Mr. Clay.......................  ........        X   .........  Mr. Barrett (SC).  ........  ........  .........
Mrs. McCarthy..................  ........        X   .........  Mr. Gerlach......  ........        X   .........
Mr. Baca.......................  ........        X   .........  Mr. Neugebauer...        X   ........  .........
Mr. Lynch......................  ........        X   .........  Mr. Price (GA)...  ........  ........  .........
Mr. Miller (NC)................  ........        X   .........  Mr. McHenry......        X   ........  .........
Mr. Scott......................  ........        X   .........  Mr. Campbell.....        X   ........  .........
Mr. Green......................  ........        X   .........  Mr. Putnam.......        X   ........  .........
Mr. Cleaver....................  ........        X   .........  Mrs. Bachmann....        X   ........  .........
Ms. Bean.......................  ........        X   .........  Mr. Marchant.....  ........        X   .........
Ms. Moore (WI).................  ........  ........  .........  Mr. McCotter.....  ........        X   .........
Mr. Hodes......................  ........  ........  .........  Mr. McCarthy.....        X   ........  .........
Mr. Ellison....................  ........        X   .........  Mr. Posey........  ........        X   .........
Mr. Klein......................  ........        X   .........  Ms. Jenkins......        X   ........  .........
Mr. Wilson.....................  ........        X   .........  Mr. Lee..........  ........        X   .........
Mr. Perlmutter.................  ........        X   .........  Mr. Paulsen......  ........        X   .........
Mr. Donnelly...................  ........        X   .........  Mr. Lance........        X   ........  .........
Mr. Foster.....................  ........        X   .........
Mr. Carson.....................  ........        X   .........
Ms. Speier.....................  ........        X   .........
Mr. Childers...................  ........        X   .........
Mr. Minnick....................  ........        X   .........
Mr. Adler......................  ........        X   .........
Ms. Kilroy.....................  ........        X   .........
Mr. Driehaus...................  ........        X   .........
Ms. Kosmas.....................  ........        X   .........
Mr. Grayson....................  ........        X   .........
Mr. Himes......................  ........        X   .........
Mr. Peters.....................  ........        X   .........
Mr. Maffei.....................  ........        X   .........
----------------------------------------------------------------------------------------------------------------

    An amendment by Mr. Garrett (NJ), no. 7, regarding a 
downpayment requirement during periods when MMIF does not 
comply with capital ratio requirement, was not agreed to by a 
record vote of 22 yeas and 43 nays (Record vote no. FC-108):

                                             RECORD VOTE NO. FC-108
----------------------------------------------------------------------------------------------------------------
         Representative             Aye       Nay     Present     Representative      Aye       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Frank......................  ........        X   .........  Mr. Bachus.......        X   ........  .........
Mr. Kanjorski..................  ........        X   .........  Mr. Castle.......  ........        X   .........
Ms. Waters.....................  ........        X   .........  Mr. King (NY)....        X   ........  .........
Mrs. Maloney...................  ........        X   .........  Mr. Royce........        X   ........  .........
Mr. Gutierrez..................  ........  ........  .........  Mr. Lucas........        X   ........  .........
Ms. Velazquez..................  ........  ........  .........  Mr. Paul.........        X   ........  .........
Mr. Watt.......................  ........        X   .........  Mr. Manzullo.....        X   ........  .........
Mr. Ackerman...................  ........        X   .........  Mr. Jones........        X   ........  .........
Mr. Sherman....................  ........        X   .........  Mrs. Biggert.....  ........        X   .........
Mr. Meeks......................  ........        X   .........  Mr. Miller (CA)..        X   ........  .........
Mr. Moore (KS).................  ........        X   .........  Mrs. Capito......  ........        X   .........
Mr. Capuano....................  ........        X   .........  Mr. Hensarling...        X   ........  .........
Mr. Hinojosa...................  ........        X   .........  Mr. Garrett (NJ).        X   ........  .........
Mr. Clay.......................  ........        X   .........  Mr. Barrett (SC).  ........  ........  .........
Mrs. McCarthy..................  ........        X   .........  Mr. Gerlach......        X   ........  .........
Mr. Baca.......................  ........        X   .........  Mr. Neugebauer...        X   ........  .........
Mr. Lynch......................  ........        X   .........  Mr. Price (GA)...  ........  ........  .........
Mr. Miller (NC)................  ........        X   .........  Mr. McHenry......        X   ........  .........
Mr. Scott......................  ........        X   .........  Mr. Campbell.....        X   ........  .........
Mr. Green......................  ........        X   .........  Mr. Putnam.......        X   ........  .........
Mr. Cleaver....................  ........        X   .........  Mrs. Bachmann....        X   ........  .........
Ms. Bean.......................  ........        X   .........  Mr. Marchant.....        X   ........  .........
Ms. Moore (WI).................  ........  ........  .........  Mr. McCotter.....        X   ........  .........
Mr. Hodes......................  ........  ........  .........  Mr. McCarthy.....        X   ........  .........
Mr. Ellison....................  ........        X   .........  Mr. Posey........  ........        X   .........
Mr. Klein......................  ........        X   .........  Ms. Jenkins......        X   ........  .........
Mr. Wilson.....................  ........        X   .........  Mr. Lee..........  ........        X   .........
Mr. Perlmutter.................  ........        X   .........  Mr. Paulsen......        X   ........  .........
Mr. Donnelly...................  ........        X   .........  Mr. Lance........        X   ........  .........
Mr. Foster.....................  ........        X   .........
Mr. Carson.....................  ........        X   .........
Ms. Speier.....................  ........        X   .........
Mr. Childers...................  ........        X   .........
Mr. Minnick....................  ........        X   .........
Mr. Adler......................  ........        X   .........
Ms. Kilroy.....................  ........        X   .........
Mr. Driehaus...................  ........        X   .........
Ms. Kosmas.....................  ........        X   .........
Mr. Grayson....................  ........        X   .........
Mr. Himes......................  ........        X   .........
Mr. Peters.....................  ........        X   .........
Mr. Maffei.....................  ........        X   .........
----------------------------------------------------------------------------------------------------------------

    An amendment by Mr. Garrett (NJ), no. 8, regarding a 
prohibition on financing up-front premiums, was not agreed to 
by a record vote of 26 yeas and 39 nays (Record vote no. FC-
109):

                                             RECORD VOTE NO. FC-109
----------------------------------------------------------------------------------------------------------------
         Representative             Aye       Nay     Present     Representative      Aye       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Frank......................  ........        X   .........  Mr. Bachus.......        X   ........  .........
Mr. Kanjorski..................  ........        X   .........  Mr. Castle.......        X   ........  .........
Ms. Waters.....................  ........        X   .........  Mr. King (NY)....        X   ........  .........
Mrs. Maloney...................  ........        X   .........  Mr. Royce........        X   ........  .........
Mr. Gutierrez..................  ........  ........  .........  Mr. Lucas........        X   ........  .........
Ms. Velazquez..................  ........  ........  .........  Mr. Paul.........        X   ........  .........
Mr. Watt.......................  ........        X   .........  Mr. Manzullo.....        X   ........  .........
Mr. Ackerman...................  ........        X   .........  Mr. Jones........        X   ........  .........
Mr. Sherman....................  ........        X   .........  Mrs. Biggert.....  ........        X   .........
Mr. Meeks......................  ........        X   .........  Mr. Miller (CA)..        X   ........  .........
Mr. Moore (KS).................  ........        X   .........  Mrs. Capito......        X   ........  .........
Mr. Capuano....................  ........        X   .........  Mr. Hensarling...        X   ........  .........
Mr. Hinojosa...................  ........        X   .........  Mr. Garrett (NJ).        X   ........  .........
Mr. Clay.......................  ........        X   .........  Mr. Barrett (SC).  ........  ........  .........
Mrs. McCarthy..................  ........        X   .........  Mr. Gerlach......        X   ........  .........
Mr. Baca.......................  ........        X   .........  Mr. Neugebauer...        X   ........  .........
Mr. Lynch......................  ........        X   .........  Mr. Price (GA)...  ........  ........  .........
Mr. Miller (NC)................  ........        X   .........  Mr. McHenry......        X   ........  .........
Mr. Scott......................  ........        X   .........  Mr. Campbell.....        X   ........  .........
Mr. Green......................  ........        X   .........  Mr. Putnam.......        X   ........  .........
Mr. Cleaver....................  ........        X   .........  Mrs. Bachmann....        X   ........  .........
Ms. Bean.......................  ........        X   .........  Mr. Marchant.....        X   ........  .........
Ms. Moore (WI).................  ........  ........  .........  Mr. McCotter.....        X   ........  .........
Mr. Hodes......................  ........  ........  .........  Mr. McCarthy.....        X   ........  .........
Mr. Ellison....................  ........        X   .........  Mr. Posey........        X   ........  .........
Mr. Klein......................  ........        X   .........  Ms. Jenkins......        X   ........  .........
Mr. Wilson.....................  ........        X   .........  Mr. Lee..........        X   ........  .........
Mr. Perlmutter.................  ........        X   .........  Mr. Paulsen......        X   ........  .........
Mr. Donnelly...................  ........        X   .........  Mr. Lance........        X   ........  .........
Mr. Foster.....................  ........        X   .........
Mr. Carson.....................  ........        X   .........
Ms. Speier.....................  ........        X   .........
Mr. Childers...................  ........        X   .........
Mr. Minnick....................  ........        X   .........
Mr. Adler......................  ........        X   .........
Ms. Kilroy.....................  ........        X   .........
Mr. Driehaus...................  ........        X   .........
Ms. Kosmas.....................  ........        X   .........
Mr. Grayson....................  ........        X   .........
Mr. Himes......................  ........        X   .........
Mr. Peters.....................  ........        X   .........
Mr. Maffei.....................  ........        X   .........
----------------------------------------------------------------------------------------------------------------

    An amendment by Mr. Garrett (NJ), no. 9, regarding a risk-
sharing requirement, was not agreed to by a record vote of 22 
yeas and 43 nays (Record vote no. FC-110):

                                             RECORD VOTE NO. FC-110
----------------------------------------------------------------------------------------------------------------
         Representative             Aye       Nay     Present     Representative      Aye       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Frank......................  ........        X   .........  Mr. Bachus.......        X   ........  .........
Mr. Kanjorski..................  ........        X   .........  Mr. Castle.......        X   ........  .........
Ms. Waters.....................  ........        X   .........  Mr. King (NY)....        X   ........  .........
Mrs. Maloney...................  ........        X   .........  Mr. Royce........        X   ........  .........
Mr. Gutierrez..................  ........  ........  .........  Mr. Lucas........        X   ........  .........
Ms. Velazquez..................  ........  ........  .........  Mr. Paul.........        X   ........  .........
Mr. Watt.......................  ........        X   .........  Mr. Manzullo.....  ........        X   .........
Mr. Ackerman...................  ........        X   .........  Mr. Jones........        X   ........  .........
Mr. Sherman....................  ........        X   .........  Mrs. Biggert.....  ........        X   .........
Mr. Meeks......................  ........        X   .........  Mr. Miller (CA)..  ........        X   .........
Mr. Moore (KS).................  ........        X   .........  Mrs. Capito......  ........        X   .........
Mr. Capuano....................  ........        X   .........  Mr. Hensarling...        X   ........  .........
Mr. Hinojosa...................  ........        X   .........  Mr. Garrett (NJ).        X   ........  .........
Mr. Clay.......................  ........        X   .........  Mr. Barrett (SC).  ........  ........  .........
Mrs. McCarthy..................  ........        X   .........  Mr. Gerlach......        X   ........  .........
Mr. Baca.......................  ........        X   .........  Mr. Neugebauer...        X   ........  .........
Mr. Lynch......................  ........        X   .........  Mr. Price (GA)...  ........  ........  .........
Mr. Miller (NC)................  ........        X   .........  Mr. McHenry......        X   ........  .........
Mr. Scott......................  ........        X   .........  Mr. Campbell.....        X   ........  .........
Mr. Green......................  ........        X   .........  Mr. Putnam.......        X   ........  .........
Mr. Cleaver....................  ........        X   .........  Mrs. Bachmann....        X   ........  .........
Ms. Bean.......................  ........        X   .........  Mr. Marchant.....  ........        X   .........
Ms. Moore (WI).................  ........  ........  .........  Mr. McCotter.....        X   ........  .........
Mr. Hodes......................  ........  ........  .........  Mr. McCarthy.....        X   ........  .........
Mr. Ellison....................  ........        X   .........  Mr. Posey........        X   ........  .........
Mr. Klein......................  ........        X   .........  Ms. Jenkins......        X   ........  .........
Mr. Wilson.....................  ........        X   .........  Mr. Lee..........        X   ........  .........
Mr. Perlmutter.................  ........        X   .........  Mr. Paulsen......        X   ........  .........
Mr. Donnelly...................  ........        X   .........  Mr. Lance........        X   ........  .........
Mr. Foster.....................  ........        X   .........
Mr. Carson.....................  ........        X   .........
Ms. Speier.....................  ........        X   .........
Mr. Childers...................  ........        X   .........
Mr. Minnick....................  ........        X   .........
Mr. Adler......................  ........        X   .........
Ms. Kilroy.....................  ........        X   .........
Mr. Driehaus...................  ........        X   .........
Ms. Kosmas.....................  ........        X   .........
Mr. Grayson....................  ........        X   .........
Mr. Himes......................  ........        X   .........
Mr. Peters.....................  ........        X   .........
Mr. Maffei.....................  ........        X   .........
----------------------------------------------------------------------------------------------------------------

    The following other amendments were also considered by the 
Committee:
    An amendment by Mr. Kanjorski, no. 1, regarding increased 
loan limits for designated counties, was offered and withdrawn.
    An amendment by Mr. Miller (CA), no. 2, regarding a shared 
equity pilot program, was offered and withdrawn.
    An amendment by Mr. Klein (and Mr. Marchant), no. 3, 
regarding third party servicer outreach, was agreed to by a 
voice vote.
    An amendment by Ms. Waters, no. 6, a technical amendment, 
was agreed to by a voice vote.

                      Committee Oversight Findings

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

                    Performance Goals and Objectives

    Pursuant to clause 3(c)(4) of rule XIII of the Rules of the 
House of Representatives, the Committee establishes the 
following performance related goals and objectives for this 
legislation:
    The purpose of H.R. 5072 is to minimize the default risk to 
the MMIF and to homeowners and to meet the housing needs of the 
borrowers that the FHA single family program is designed to 
serve by empowering the FHA to increase the annual mortgage 
insurance premium for new borrowers and with enhanced authority 
to reduce default risk to the MMIF.

   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:

                                                       May 6, 2010.
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. 5072, the FHA 
Reform Act of 2010.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Susanne S. 
Mehlman.
            Sincerely,
                                              Douglas W. Elmendorf.
    Enclosure.

H.R. 5072--FHA Reform Act of 2010

    Summary: H.R. 5072 would raise the cap on the annual 
premiums charged to borrowers under the Federal Housing 
Administration's (FHA's) single-family mortgage-guarantee 
program. This legislation also would authorize an appropriation 
of the necessary amount for 2011 to reimburse mortgage-loan 
servicers for the cost of providing financial counseling to 
borrowers with delinquent loans. In addition, H.R. 5072 would 
make other changes to current law aimed at improving the 
financial safety and soundness of FHA's single-family program.
    CBO estimates that implementing H.R. 5072 would result in a 
net decrease in discretionary spending of about $2.5 billion 
over the 2011-2015 period, assuming enactment of appropriation 
laws over that period necessary to implement FHA's single-
family program and the Mortgage-Backed Securities (MBS) program 
of the Government National Mortgage Association (GNMA).
    Pay-as-you-go procedures do not apply to this legislation 
because it would not affect direct spending or revenues.
    H.R. 5072 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. 5072 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--
                                                    ------------------------------------------------------------
                                                       2011      2012      2013      2014      2015    2011-2015
----------------------------------------------------------------------------------------------------------------
                                  CHANGES IN SPENDING SUBJECT TO APPROPRIATION

Additional FHA Offsetting Collections:
    Estimated Authorization Level..................      -902      -800      -510      -280      -100     -2,592
    Estimated Outlays..............................      -902      -800      -510      -280      -100     -2,592
Loss of GNMA Offsetting Collections:
    Estimated Authorization Level..................        16         0         0         0         0         16
    Estimated Outlays..............................        16         0         0         0         0         16
Third-Party Servicer Outreach:
    Estimated Authorization Level..................        53         0         0         0         0         53
    Estimated Outlays..............................        40        13         0         0         0         53
Other Costs:
    Estimated Authorization Level..................         *         *         *         *         *          2
    Estimated Outlays..............................         *         *         *         *         *          2
    Total Changes:
        Estimated Authorization Level..............      -833      -800      -510      -280      -100     -2,521
        Estimated Outlays..........................      -846      -787      -510      -280      -100     -2,521
----------------------------------------------------------------------------------------------------------------
Note: * = less than $500,000.

    Basis of estimate: For this estimate, CBO assumes that the 
bill will be enacted near the beginning of fiscal year 2011 and 
that the authority to guarantee new loans for the FHA single-
family program and for GNMA to guarantee payment by pools of 
those loans sold to investors as securities will be provided in 
appropriation acts each year.
    Under the Federal Credit Reform Act (FCRA), funds must be 
appropriated in advance to cover the estimated subsidy cost of 
providing loan guarantees on a present-value basis. (The 
subsidy cost is the estimated long-term cost to the government 
of a direct loan or loan guarantee calculated on a net-present-
value-basis, excluding administrative costs.) For credit 
programs that are estimated to result in a net savings to the 
government, no appropriation of credit subsidy is required; 
however, for such programs, appropriation acts must specify the 
aggregate amount of loans that may be guaranteed. That figure 
is known as the annual commitment authority.

Increasing annual premiums

    CBO estimates that amending the premium that FHA may charge 
borrowers for participating in its mortgage-guarantee program 
would affect offsetting collections generated by FHA and by 
GNMA.
    Additional FHA Offsetting Collections. Under this 
legislation, the cap on annual premiums for the single-family 
program would increase from 0.55 percent to 1.55 percent of the 
loan balance. The average borrower currently pays a fee equal 
to 0.52 percent of the remaining balance on their mortgage to 
FHA. Based on information from FHA, CBO expects that under the 
bill, FHA would charge borrowers, on average, 0.88 percent of 
their loan balance amount annually. In addition, CBO expects 
that FHA would lower the up-front premium from 2.25 percent to 
1 percent of the mortgage amount, though this action would not 
be required under this legislation. CBO estimates that those 
changes to the premium structure would change the estimated 
credit subsidy rate for the program from -0.4 percent to -0.8 
percent. We estimate that under this revised premium structure, 
the volume of loan guarantees handled by FHA in 2011 would 
decrease slightly from $240 billion to $232 billion because the 
increase in the annual premium would deter some borrowers from 
participating in the single-family program. On balance, we 
estimate that the revised premium structure would increase 
offsetting collections (a credit against discretionary 
spending) from the program by $900 million in 2011, assuming 
the appropriation action to establish the 2011 commitment 
authority for the FHA single-family program.
    Over the 2011-2015 period, CBO estimates that about $2.6 
billion in additional net offsetting collections would be 
realized under this provision. This estimate assumes, based on 
information from FHA, that after 2011, upfront and annual 
premiums charged by FHA would start to revert to the lower 
levels charged today.
    Loss of GNMA Offsetting Collection. Through its MBS 
program, GNMA is responsible for guaranteeing securities backed 
by pools of mortgages that are insured by federal agencies such 
as FHA. In exchange for a fee paid by lenders or issuers of the 
securities, GNMA guarantees the timely payment of scheduled 
principal and interest due on the pooled mortgages that back 
those securities. Because the value of the fees collected by 
GNMA is estimated to exceed the cost of loan defaults in each 
year, the Administration estimates that under current law, the 
GNMA MBS program will have a subsidy rate of -0.24 percent in 
2011, resulting in net receipt collections to the federal 
government.
    CBO estimates that each year about 90 percent of the new 
mortgage loan guarantees made by FHA would be included in 
GNMA's MBS program. Because CBO estimates that changes in FHA's 
premium structure under H.R. 5072 would reduce FHA's 2011 loan-
guarantee volume by $8 billion, we estimate that the GNMA MBS 
program would realize a loss of about $16 million in offsetting 
collections in 2011. After 2011, CBO expects that the new FHA 
premium structure would have a negligible impact on the volume 
of loan guarantees provided by FHA, and thus the legislation 
would have no further impact on GNMA collections.

Third-Party servicer outreach

    H.R. 5072 would authorize the appropriation of whatever 
sums are necessary in 2011 for the Department of Housing and 
Urban Development to reimburse servicers of single-family loans 
insured by FHA for the cost of providing financial counseling 
to borrowers whose mortgage payments are 60 days past due. 
Based on information from FHA, CBO expects that in 2011 about 
700,000 loans could become 60 or more days delinquent, and that 
about 50 percent of the borrowers holding such loans would 
require counseling to help them become current on their loans. 
According to FHA, such credit counseling costs about $150 per 
loan. Thus, CBO estimates that implementing this provision 
would cost $53 million over the 2011-2012 period.

Other costs

    Enacting this legislation would make various changes to the 
processes used by FHA to oversee the single-family loan 
program, such as requiring the review of mortgages that default 
within 24 months of being originated and requiring lenders to 
use certain identifiers when processing a loan to ensure that 
lenders can be easily tracked nationally through the existing 
Nationwide Mortgage Licensing System and Registry. In addition, 
H.R. 5072 would establish the position of Deputy Assistant 
Secretary for Risk Management and Regulatory Affairs within 
FHA.
    Based on information from FHA, CBO estimates that enacting 
those provisions and other provisions associated with improving 
and streamlining FHA's oversight of loans would not result in 
significant additional costs. According to FHA, existing 
resources would be used to meet the vast majority of the 
requirements under this legislation.
    H.R. 5072 also would require the Government Accountability 
Office within one year of enactment to produce a report on the 
safety and soundness of FHA's single-family program and a 
report on the safety and soundness of GNMA's MBS program. CBO 
estimates that such reports would each cost less than $500,000 
over the 2011-2015 period.
    In total, CBO estimates that performing those other 
activities would cost about $2 million over the 2011-2015 
period, subject to the availability of appropriated funds.
    Pay-as-you-go considerations: None.
    Intergovernmental and private-sector impact: H.R. 5072 
contains no intergovernmental or private-sector mandates as 
defined in UMRA. The bill would benefit housing finance 
agencies by authorizing reimbursements for servicers that 
provide counseling for delinquent borrowers. Any costs to those 
agencies of participating in the program would be incurred 
voluntarily.
    Estimate prepared by: Federal costs: Susanne S. Mehlman; 
Impact on state, local, and tribal governments: Elizabeth Cove 
Delisle; Impact on the private sector: Paige Piper/Bach.
    Estimate approved by: Theresa Gullo, 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.

                         Earmark Identification

    H.R. 5072 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. Short title

    The Act may be cited as the ``FHA Reform Act of 2010''.

Section 2. Annual mortgage insurance premium

    Section 2 amends section 203(c)(2)(B) of the National 
Housing Act (12 U.S.C. 1709(c)(2)(B)) to raise the maximum 
allowable annual mortgage insurance premium (a) for mortgages 
below 95 percent of value from the current 0.50 percent to 1.5 
percent; and (b) for mortgages at or above 95 percent of value 
from the current 0.55 percent to 1.55 percent.

Section 3. Indemnification by mortgagees

    Section 3 amends section 202 of the National Housing Act 
(12 U.S.C. 1708) by adding a new section to strengthen 
provisions under which mortgage lenders are liable to indemnify 
the Secretary for loss on certain loans they originate or 
underwrite. The Secretary may require indemnification if a 
mortgage approved by the Secretary under the direct endorsement 
program or insured by a mortgagee pursuant to delegation of 
authority under section 256 was not originated or underwritten 
in accordance with requirements established by the Secretary, 
and the Secretary pays an insurance claim within a reasonable 
period specified by the Secretary. If fraud or 
misrepresentation was involved in connection with the 
origination or underwriting, the Secretary may require the 
mortgagee to indemnify the Secretary for the loss regardless of 
when an insurance claim is paid.

Section 4. Delegation of insuring authority

    To implement Section 3 of this Act, Section 4 also strikes 
subsection (c) of section 256 of the National Housing Act (12 
U.S.C. 1715z-21), entitled ``Enforcement of Insurance 
Requirements'' that formerly provided the authority for the 
Secretary to address situations in which mortgages were not 
originated in accordance with requirements established by the 
Secretary, or where fraud or misrepresentation was involved.

Section 5. Authority to terminate mortgagee origination and 
        underwriting approval

    Section 5 amends section 533 of the National Housing Act 
(12 U.S.C. 1735f-11) to give the Secretary enhanced ability to 
review mortgagee performance and, if a mortgagee is found to 
have an excessive rate of early defaults or claims, to 
terminate the approval of the mortgagee to originate or 
underwrite single family mortgages in a specified area(s) or on 
a nationwide basis.

Section 6. Deputy Assistant Secretary of FHA for Risk Management and 
        Regulatory Affairs

    Section 6 creates a new position in FHA for a ``Deputy 
Assistant Secretary for Risk Management and Regulatory 
Affairs,'' who will be appointed by the Secretary and report to 
the FHA Commissioner and will be responsible for matters 
relating to managing and mitigating risk to the mortgage 
insurance funds.

Section 7. Use of outside credit risk analysis sources

    Section 7 authorizes the Secretary to obtain the services 
of and enter into contracts with private and other entities 
outside of the Department for the following: (1) analyzing 
credit risk models and practices employed by the Department; 
(2) evaluating underwriting standards for FHA-insured 
mortgages; and (3) analyzing the performance of lenders in 
complying with, and HUD in enforcing, such underwriting 
standards.

Section 8. Review of mortgagee performance

    Section 8 amends section 533 of the National Housing Act 
(12 U.S.C. 1735f-11), which requires HUD to review the rate of 
early defaults and claims for insured single-family mortgages, 
to define ``early default'' as occurring within 24 months of 
origination or such alternative period as the Secretary shall 
establish. It also requires the Secretary to identify which 
mortgagees have had a significant or rapid increase in the 
number of early defaults and claims. Section 8 also authorizes 
appropriations through FY 2014 in an amount necessary to 
provide additional staff, or to enter into contracts, to 
conduct such reviews and to carry out other activities to 
ensure the safety and soundness of the MMIF. Ninety days after 
enactment of the bill, and not less than annually thereafter, 
the Secretary shall make any information or conclusions 
pursuant to the reviews available to Congress.

Section 9. Use of Nationwide Mortgage Licensing System and registry

    Section 9 of the Act amends section 202 of the National 
Housing Act (12 U.S.C. 1708) to provide that the Secretary may 
require FHA mortgagees (both companies and individuals and 
officers) to obtain and maintain unique identifiers assigned by 
the Nationwide Mortgage Licensing System (NMLS). The Secretary 
may also require each mortgage insured under section 203 of the 
National Housing Act (12 U.S.C. 1709) to include an NMLS unique 
identifier, and any unique company identifier assigned by the 
NMLS. The Section also provides that the Secretary shall pursue 
protocols for information sharing and coordination with 
appropriate State regulatory agencies.

Section 10. Reporting of mortgagee actions taken against other 
        mortgagees

    Section 10 instructs the Secretary to require mortgagees, 
as a condition of FHA mortgagee-approval, to report to FHA any 
actions to terminate or discontinue purchases from other 
mortgagees based on a determination of fraud or material 
misrepresentation.

Section 11. Annual actuarial study and quarterly reports on Mutual 
        Mortgage Insurance Fund

    In addition to the Annual Actuarial FHA study, the Housing 
and Economic Recovery Act of 2008 established new HUD quarterly 
reporting requirements on the FHA program. Section 11 amends 
section 202 of the National Housing Act (12 U.S.C. 1708(a)) to 
require that these quarterly reports also include an assessment 
of any changes to the current or projected safety and soundness 
of the Mutual Mortgage Insurance Fund since the most recent 
quarterly report. The Secretary may include in this report any 
recommendations to restore the safety and soundness of the Fund 
not made in the preceding quarterly report.

Section 12. Review of downpayment requirements

    Section 12 amends section 205 of the National Housing Act 
(12 U.S.C. 1711) to provide that if FHA institutes any 
increased downpayment requirement for borrowers when the MMIF 
is below the 2 percent mandated under section 202 of the 
National Housing Act, the Secretary must review that 
requirement when the MMIF again complies with the 2 percent 
reserve mandate and subsequently reduce the increased 
downpayment requirement for borrowers, in such amount or 
percentage that the Secretary considers appropriate, if 
compliance with section 202 can be maintained.

Section 13. Default and origination information by loan servicer and 
        originating direct endorsement lender

    Section 13 amends the FHA reporting requirements of section 
540(b) of the National Housing Act (12 U.S.C. 1712 U.S.C. 
1735f-18(b)(2)) to require the Secretary to track mortgage 
performance by servicer.

Section 14. Third party servicer outreach

    Section 14 states that the Secretary may use funds (to the 
extent they are available in advance in appropriation Acts for 
fiscal year 2010 or 2011 for this section) to provide 
reimbursements to servicers for the costs of obtaining the 
services of independent third parties to make in-person contact 
with mortgagors that are 60 or more days past due under covered 
mortgages, solely for the purposes of providing information to 
mortgagors regarding the availability of housing counseling, 
loan modifications and refinancing (covered mortgages are on 
one to four family residences insured by FHA under subsections 
(b) or (k) of section 203, section 234(c) or section 251 of the 
National Housing Act (12 U.S.C. 1709, 1715y, 1715z-16). The 
independent third parties must protect the confidentiality of 
mortgagor information, and must provide adequate disclosures to 
mortgagors, including the name of and contact information for 
the mortgage servicer, the fact that the independent third 
party's services will come at no cost to the mortgagor, the 
fact that the independent third party is an agent of the 
servicer, the fact that the in-person contact is for the 
purposes of providing information to the mortgagor regarding 
the availability of housing counseling, loan modifications and 
refinancing, and the fact that the independent third party and 
the servicer are prohibited from using, disclosing or 
distributing confidential information about the mortgagor 
except for the purposes of engaging in a loan modification or 
refinance.

Section 15. GAO reports on FHA and Ginnie Mae

    Section 15 requires two reports from the General 
Accountability Office within 12 months of bill enactment:
    1) An assessment of (a) the FHA Mutual Mortgage Insurance 
Fund (including the economic net worth, capital ratio and 
unamortized insurance-in-force of the Fund), risks to the Fund 
and exposure of taxpayers for obligations of the Fund, how the 
capital ratio affects mortgage insurance premiums, and the 
extent to which housing markets are more dependent on mortgage 
insurance provided through the Fund since the start of the 
financial crisis; (b) the methodology for calculating the 
capital ratio of the Fund, including other alternative 
methodologies that could meet the operational goals of the 
Fund; (c) the impact the increase in maximum loan limits has on 
the safety and soundness of the Fund, the affordability and 
availability of mortgage credit, the private market for 
residential mortgage insurance, and Fannie Mae and Freddie Mac; 
and (d) the impact of seller concessions on mortgage 
affordability and the Fund.
    2) An assessment of the Government National Mortgage 
Association (Ginnie Mae) that (a) identifies the volume and 
share of the mortgage-backed securities market for which Ginnie 
Mae provides insurance and explains how Ginnie Mae has been 
impacted by the financial crisis; (b) examines the capacity of 
Ginnie Mae to manage their increased volume of business; (c) 
describes the impact of this increased volume of business and 
the challenges this increase poses to internal controls; and 
(d) provides recommendations for appropriate net worth 
requirements for the issuers of securities backed by Ginnie Mae 
insurance.

         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

           *       *       *       *       *       *       *



               FEDERAL HOUSING ADMINISTRATION OPERATIONS

  Sec. 202. (a) Mutual Mortgage Insurance Fund.--
          (1) * * *

           *       *       *       *       *       *       *

          (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, any changes 
        to the current or projected safety and soundness of the 
        Fund since the most recent report under this paragraph 
        or paragraph (5), and any risks to the Fund. The report 
        shall recommend adjustments to underwriting standards, 
        program participation, or premiums, if necessary, to 
        ensure that the Fund remains financially sound. The 
        report shall also include an evaluation of the quality 
        control procedures and accuracy of information utilized 
        in the process of underwriting loans guaranteed by the 
        Fund. Such evaluation shall include a review of the 
        risk characteristics of loans based not only on 
        borrower information and performance, but on risks 
        associated with loans originated or funded by various 
        entities or financial institutions.
          (5) Quarterly reports.--During each fiscal year, the 
        Secretary shall submit a report to the Congress for 
        each calendar quarter, which shall specify for 
        mortgages that are obligations of the Fund--
                  (A) * * *

           *       *       *       *       *       *       *

                  (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[.]; and
                  (F) any other factors that are likely to have 
                an impact on the financial status of the Fund 
                or cause any material changes to the current or 
                projected safety and soundness of the Fund 
                since the most recent report under paragraph 
                (4).
        The Secretary may include in the report under this 
        paragraph any recommendations not made in the most 
        recent report under paragraph (4) that may be needed to 
        ensure that the Fund remains financially sound. The 
        first quarterly report under this paragraph shall be 
        submitted on the last day of the first quarter of 
        fiscal year 2008, or on the last day of the first full 
        calendar quarter following the enactment of the 
        Building American Homeownership Act of 2008, whichever 
        is later.

           *       *       *       *       *       *       *

  (i) Indemnification by Mortgagees.--
          (1) In general.--If the Secretary determines that a 
        mortgage executed by a mortgagee approved by the 
        Secretary under the direct endorsement program or 
        insured by a mortgagee pursuant to the delegation of 
        authority under section 256 was not originated or 
        underwritten in accordance with the requirements 
        established by the Secretary, and the Secretary pays an 
        insurance claim with respect to the mortgage within a 
        reasonable period specified by the Secretary, the 
        Secretary may require the mortgagee approved by the 
        Secretary under the direct endorsement program or the 
        mortgagee delegated authority under section 256 to 
        indemnify the Secretary for the loss.
          (2) Fraud or misrepresentation.--If fraud or 
        misrepresentation was involved in connection with the 
        origination or underwriting, the Secretary may require 
        the mortgagee approved by the Secretary under the 
        direct endorsement program or the mortgagee delegated 
        authority under section 256 to indemnify the Secretary 
        for the loss regardless of when an insurance claim is 
        paid.
          (3) Requirements and procedures.--The Secretary shall 
        issue regulations establishing appropriate requirements 
        and procedures governing the indemnification of the 
        Secretary by the mortgagee.
  (j) Use of outside credit risk analysis sources.--The 
Secretary may obtain the services of, and enter into contracts 
with, private and other entities outside of the Department in--
          (1) analyzing credit risk models and practices 
        employed by the Department in connection with such 
        mortgages;
          (2) evaluating underwriting standards applicable to 
        such mortgages insured by the Department; and
          (3) analyzing the performance of lenders in complying 
        with, and the Department in enforcing, such 
        underwriting standards.
  (k) Use of Nationwide Mortgage Licensing System and Registry 
for Mortgagees, Officers, and Owners.--The Secretary may 
require, as a condition for approval of a mortgagee by the 
Secretary to originate or underwrite mortgages on single family 
that are insured by the Secretary, that the mortgagee--
          (1) obtain and maintain a unique company identifier 
        assigned by the Nationwide Mortgage Licensing System 
        and Registry, as established by the Conference of State 
        Bank Supervisors and the American Association of 
        Residential Mortgage Regulators; and
          (2) obtain and maintain, as relates to any and all 
        officers or owners of the mortgagee who are subject to 
        the requirements of the S.A.F.E. Mortgage Licensing Act 
        of 2008, or are otherwise required to register with the 
        Nationwide Mortgage Licensing System and Registry, the 
        unique identifier assigned by the Nationwide Mortgage 
        Licensing System and Registry, as established by the 
        Conference of State Bank Supervisors and the American 
        Association of Residential Mortgage Regulators.
  (l) Information Sharing With State Regulatory Agencies.--
          (1) Joint protocol on information sharing.--The 
        Secretary shall, through consultation with State 
        regulatory agencies, pursue protocols for information 
        sharing, including the appropriate treatment of 
        confidential or otherwise restricted information, 
        regarding either actions described in subsection (c)(3) 
        of this section or disciplinary or enforcement actions 
        by a State regulatory agency or agencies against a 
        mortgagee (as such term is defined in subsection 
        (c)(7)).
          (2) Coordination.--To the greatest extent possible, 
        the Secretary and appropriate State regulatory agencies 
        shall coordinate disciplinary and enforcement actions 
        involving mortgagees (as such term is defined in 
        subsection (c)(7)).
  (m) Notification of mortgagee actions.--The Secretary shall 
require each mortgagee, as a condition for approval by the 
Secretary to originate or underwrite mortgages on single family 
or multifamily housing that are insured by the Secretary, if 
such mortgagee engages in the purchase of mortgages insured by 
the Secretary and originated by other mortgagees or in the 
purchase of the servicing rights to such mortgages, and such 
mortgagee at any time takes action to terminate or discontinue 
such purchases from another mortgagee based on any 
determination, evidence, or report of fraud or material 
misrepresentation in connection with the origination of such 
mortgages, the mortgagee shall, not later than 15 days after 
taking such action, shall notify the Secretary of the action 
taken and the reasons for such action.

                         INSURANCE OF MORTGAGES

  Sec. 203. (a) * * *

           *       *       *       *       *       *       *

  (c)(1) * * *
  (2) 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 shall be 
subject to the following requirements:
          (A) * * *
          (B) In addition to the premium under subparagraph 
        (A), the Secretary [shall] may establish and collect 
        annual premium payments in an amount not exceeding 
        [0.50 percent] 1.5 percent of the remaining insured 
        principal balance (excluding the portion of the 
        remaining balance attributable to the premium collected 
        under subparagraph (A) and without taking into account 
        delinquent payments or prepayments) for the following 
        periods:
                  (i) * * *
                  (ii) For any mortage involving an original 
                principal obligation (excluding any premium 
                collected under subparagraph (A)) that is 
                greater than or equal to 90 percent of such 
                value, for the first 30 years of the mortgage 
                term; except that notwithstanding the matter 
                preceding clause (i), for any mortgage 
                involving an original principal obligation 
                (excluding any premium collected under 
                subparagraph (A)) that is greater than 95 
                percent of such value, the annual premium 
                collected during the 30-year period under this 
                clause [shall be in an amount not exceeding 
                0.55 percent] may be in an amount not exceeding 
                1.55 percent of the remaining insured principal 
                balance (excluding the portion of the remaining 
                balance attributable to the premium collected 
                under subparagraph (A) and without taking into 
                account delinquent payments or prepayments).

           *       *       *       *       *       *       *

  (y) Use of Nationwide Mortgage Licensing System and Registry 
for Insured Loans.--The Secretary may require each mortgage 
insured under this section to include the unique identifier (as 
such term is defined in section 1503 of the S.A.F.E. Mortgage 
Licensing act of 2008 (12 U.S.C. 5102)) and any unique company 
identifier assigned by the Nationwide Mortgage Licensing System 
and Registry, as established by the Conference of State Bank 
Supervisors and the American Association of Residential 
Mortgage Regulators.

           *       *       *       *       *       *       *


             CLASSIFICATION OF MORTGAGES AND INSURANCE FUND

  Sec. 205. (a) * * *

           *       *       *       *       *       *       *

  (g) Review of Downpayment Requirements.--If, at any time when 
the capital ratio (as such term is defined in subsection (f)) 
of the Mutual Mortgage Insurance Fund does not comply with the 
requirement under subsection (f)(1), the Secretary establishes 
a cash investment requirement, for all mortgages or mortgagors 
or with respect to any group of mortgages or mortgagors, that 
exceeds the minimum percentage or amount required under section 
203(b)(9), thereafter upon the capital ratio first complying 
with the requirement under subsection (f)(1) the Secretary 
shall review such cash investment requirement and, if the 
Secretary determines that such percentage or amount may be 
reduced while maintaining such compliance, the Secretary shall 
subsequently reduce such requirement by such percentage or 
amount as the Secretary considers appropriate.

           *       *       *       *       *       *       *


   DELEGATION OF INSURING AUTHORITY TO DIRECT ENDORSEMENT MORTGAGEES

  Sec. 256. (a) * * *

           *       *       *       *       *       *       *

  [(c) Enforcement of Insurance Requirements.--
          [(1) In general.--If the Secretary determines that a 
        mortgage insured by a mortgagee pursuant to delegation 
        of authority under this section was not originated in 
        accordance with the requirements established by the 
        Secretary, and the Secretary pays an insurance claim 
        with respect to the mortgage within a reasonable period 
        specified by the Secretary, the Secretary may require 
        the mortgagee approved under this section to indemnify 
        the Secretary for the loss.
          [(2) Fraud or misrepresentation.--If fraud or 
        misrepresentation was involved in connection with the 
        origination, the Secretary may require the mortgagee 
        approved under this section to indemnify the Secretary 
        for the loss regardless of when an insurance claim is 
        paid.]
  [(d)] (c) Termination of Mortgagee's Authority.--If a 
mortgagee to which the Secretary has made a delegation under 
this section violates the requirements and procedures 
established by the Secretary or the Secretary determines that 
other good cause exists, the Secretary may cancel a delegation 
of authority under this section to the mortgagee by giving 
notice to the mortgagee. Such a cancellation shall be effective 
upon receipt of the notice by the mortgagee or at a later date 
specified by the Secretary. A decision by the Secretary to 
cancel a delegation shall be final and conclusive and shall not 
be subject to judicial review.
  [(e)] (d) Requirements and Procedures.--Before approving a 
delegation under this section, the Secretary shall issue 
regulations establishing appropriate requirements and 
procedures[, including requirements and procedures governing 
the indemnification of the Secretary by the mortgagee].

           *       *       *       *       *       *       *


TITLE V--MISCELLANEOUS

           *       *       *       *       *       *       *


  Sec. 533. Review of Mortgagee Performance and Authority To 
Terminate.--
  (a) Periodic Review of Mortgagee Performance.--To reduce 
losses in connection with single family mortgage insurance 
programs under this Act, at least once a year the Secretary 
shall review the rate of early defaults and claims for insured 
single family mortgages originated or underwritten by each 
mortgagee. For purposes of this subsection, the term ``early 
default'' means a default that occurs within 24 months after a 
mortgage is originated or such alternative appropriate period 
as the Secretary shall establish.
  (b) Comparison With Other Mortgagees.--For each mortgagee, 
the Secretary shall compare the rate of early defaults and 
claims for insured single family mortgage loans originated or 
underwritten by the mortgagee in an area or areas or on a 
nationwide basis with the rate of early defaults and claims for 
other mortgagees originating or underwriting insured single 
family mortgage loans in the area or areas or on a nationwide 
basis. The Secretary shall also identify which mortgagees have 
had a significant or rapid increase, as determined by the 
Secretary, in the number or percentage of early defaults and 
claims on such mortgages, with respect to all mortgages 
originated by the mortgagee or mortgages on housing located in 
any particular geographic area or areas. For purposes of this 
section, the term ``area'' means each geographic area in which 
the mortgagee is authorized by the Secretary to originate 
insured single family mortgages.
  [(c) Termination of Mortgagee Origination Approval.--(1) 
Notwithstanding section 202(c) of this Act, the Secretary may 
terminate the approval of a mortgagee to originate or 
underwrite single family mortgages if the Secretary determines 
that the mortgage loans originated or underwritten by the 
mortgagee present an unacceptable risk to the insurance funds. 
The determination shall be based on the comparison required 
under subsection (b) and shall be made in accordance with 
regulations of the Secretary. The Secretary may rely on 
existing regulations published before this section takes 
effect.
  [(2) The Secretary]
  (c) Termination of Mortgagee Origination and Underwriting 
Approval.--
          (1) Termination authority.--If the Secretary 
        determines, under the comparison provided in subsection 
        (b), that a mortgagee has a rate of early defaults and 
        claims that is excessive, the Secretary may terminate 
        the approval of the mortgagee to originate or 
        underwrite single family mortgages for any area, or 
        areas, or on a nationwide basis, notwithstanding 
        section 202(c) of this Act.
          (2) Procedure.--The Secretary shall give a mortgagee 
        at least 60 days prior written notice of any 
        termination under this subsection. The termination 
        shall take effect at the end of the notice period, 
        unless the Secretary withdraws the termination notice 
        or extends the notice period. If requested in writing 
        by the mortgagee within 30 days of the date of the 
        notice, the mortgagee shall be entitled to an informal 
        conference with the official authorized to issue 
        termination notices on behalf of the Secretary (or a 
        designee of that official). At the informal conference, 
        the mortgagee may present for consideration specific 
        factors that it believes were beyond its control and 
        that caused the excessive default and claim rate.
  (d) Sufficient Resources.--There is authorized to be 
appropriated to the Secretary for each of fiscal years 2010 
through 2014 the amount necessary to provide additional full-
time equivalent positions for the Department, or for entering 
into such contracts as are necessary, to conduct reviews in 
accordance with the requirements of this section and to carry 
out other responsibilities relating to ensuring the safety and 
soundness of the Mutual Mortgage Insurance Fund.
  (e) Reporting to Congress.--Not later than 90 days after the 
date of enactment of the FHA Reform Act of 2010 and not less 
often than annually thereafter, the Secretary shall make 
available to the Committee on Financial Services of the House 
of Representatives and the Committee on Banking, Housing, and 
Urban Affairs of the Senate any information and conclusions 
pursuant to the reviews required under subsection (a). Such 
report shall not include detailed information on the 
performance of individual mortgages.

           *       *       *       *       *       *       *


   INFORMATION REGARDING EARLY DEFAULTS AND FORECLOSURES ON INSURED 
                               MORTGAGES

  Sec. 540. (a) * * *
  (b) Contents.--
          (1) * * *
          (2) Other information.--Information collected under 
        this section shall also include the following:
                  (A) * * *

           *       *       *       *       *       *       *

                  (C) For each entity that services insured 
                mortgages, data on the performance of mortgages 
                originated during each calendar quarter 
                occurring during the applicable collection 
                period, disaggregated by the direct endorsement 
                mortgagee from whom such entity acquired such 
                servicing.

           *       *       *       *       *       *       *

                              ----------                              


            DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT ACT



           *       *       *       *       *       *       *
             UNDER SECRETARY AND OTHER OFFICERS AND OFFICES

  Sec. 4. (a) * * *
  (b)(1) There shall be in the Department a Federal Housing 
Commissioner, who shall be one of the Assistant Secretaries, 
who shall head a Federal Housing Administration within the 
Department, who shall have such duties and powers as may be 
prescribed by the Secretary, and who shall administer, under 
the supervision and direction of the Secretary, departmental 
programs relating to the private mortgage market. The Secretary 
shall ensure, to the extent practicable, that managers of 
Federal Housing Administration programs, at each level of the 
Department, shall be accountable for program operation, risk 
management, management of cash and other Federal assets, and 
program financing related to activities over which such 
managers have responsibility.
  (2) There shall be in the Department, within the Federal 
Housing Administration, a Deputy Assistant Secretary for Risk 
Management and Regulatory Affairs, who shall be appointed by 
the Secretary and shall be responsible to the Federal Housing 
Commissioner for all matters relating to managing and 
mitigating risk to the mortgage insurance funds of the 
Department and ensuring the performance of mortgages insured by 
the Department.

           *       *       *       *       *       *       *


                            ADDITIONAL VIEWS

    H.R. 5072, the FHA Reform Act of 2010, is both necessary 
and important legislation. It makes changes to the Federal 
Housing Administration (FHA) single-family mortgage insurance 
program administered by the Department of Housing and Urban 
Development (HUD) that will improve the insurance fund's 
financial condition and enhance certain enforcement tools to 
protect against fraudulent or poorly-underwritten and insured 
loans.
    The bill incorporates a majority of the provisions in 
Ranking Member Capito's legislation, H.R. 4811, the FHA Safety 
and Soundness and Taxpayer Protection Act, and goes further 
than the proposals recommended by the Administration. The 
provisions from the Capito legislation that were incorporated 
in H.R. 5072 provide additional enforcement, fiscal and risk-
assessment tools necessary to adequately administer the 
program, detect fraud and abuse, strengthen underwriting 
standards, and protect the taxpayer. In addition, H.R. 5072 
authorizes FHA to increase annual insurance premiums, requires 
indemnification by lenders for loss on loans they originate, 
and gives authority to the Secretary to require FHA compliance 
with the SAFE Act. The Secretary is authorized to require FHA 
mortgagees (both companies and individuals and officers) to 
obtain and maintain unique identifiers assigned by the 
Nationwide Mortgage Licensing System (NMLS). The Secretary may 
also require each mortgage insured under section 203 of the 
National Housing Act (12 U.S.C. 1709) to include an NMLS unique 
identifier, and any unique company identifier assigned by the 
NMLS.
    As private sector lenders have scaled back their activities 
in the wake of the serious housing downturn that began two 
years ago, the FHA has significantly increased its share of the 
single-family mortgage market from less than 5 percent to more 
than 30 percent. With higher market share has come increased 
taxpayer exposure. Elevated levels of delinquencies and 
foreclosures across the nation have had a detrimental effect on 
the financial health of the FHA program. An independent 
actuarial report released on November 12, 2009, showed that the 
capital reserve ratio for the Mutual Mortgage Insurance Fund 
(MMIF) dropped below the Congressionally-mandated threshold of 
two percent to a less-than-expected 0.53 percent. The actuarial 
review also indicated that the economic value of the FHA 
declined over 75 percent from last year, to $2.73 billion. In 
light of these facts, it is essential that Congress enact 
reforms to ensure that a taxpayer bailout of the FHA will not 
be necessary.
    The provisions in this bill represent an important step in 
providing HUD with the tools it needs to supervise and monitor 
the FHA program and assess risk. While we support this 
legislation, we believe that Congress and the Administration 
must be ever-vigilant in their oversight of this program to 
make certain that the program is adequately capitalized and is 
run in a safe and sound manner that protects the taxpayer from 
the need for another bailout. Finally, as the housing market 
begins to stabilize, we must look for ways to decrease reliance 
on Federal government guarantees and encourage the re-entry of 
private capital and investment in the mortgage market.
                                   Spencer Bachus.
                                   Randy Neugebauer.
                                   Lynn Jenkins.
                                   Gary G. Miller.
                                   Jeb Hensarling.
                                   Christopher Lee.
                                   Shelley Moore Capito.
                                   Scott Garrett.
                                   Jim Gerlach.
                                   Judy Biggert.
                                   Kenny Marchant.
                                   Thaddeus McCotter.

                            ADDITIONAL VIEWS

    As the private housing market has collapsed, the FHA has 
drastically increased its volume of total insured mortgages and 
has fallen below its congressionally mandated 2 percent capital 
reserve ratio to an all time low of 0.5 percent. Many 
economists believe low down payments, coupled with falling home 
prices, have proved to be one of the biggest predictors of 
defaults. As a result, the Housing and Economic Recovery Act of 
2008 (P.L. 110-289) included language that increased the 
required FHA down payment from 3 percent to 3.5 percent.
    H.R. 5072, the FHA Reform Act, with the changes my 
Republican colleagues made to the bill prior to its 
introduction, goes a long way to improving the financial 
condition of the Federal Housing Administration (FHA) single-
family mortgage insurance program. However, given FHA's rising 
default rates and weakened reserve ratio, Congress needs to do 
more to protect the taxpayer from yet another bailout. For this 
reason, I offered several amendments during Committee 
consideration of H.R. 5072 aimed at increasing the downpayment 
requirement for FHA and promoting greater accountability on the 
part of the FHA borrowers and lenders.
    Higher down payment requirements will protect the FHA's 
Mutual Mortgage Insurance Fund (MMIF) because mortgages with 
lower loan-to-value ratios are more likely to perform over 
time. Better performing loans mean fewer claims for the FHA 
fund to pay. The five Garret amendments are explained below:
          1.  Raise the FHA down payment requirement from 3.5 
        percent to 5 percent and prohibit closing costs from 
        being rolled in to the loan;
          2.  Require borrowers with credit score below 580 to 
        have a 10 percent down payment (HUD has already 
        announced it will require 10 percent down for all 
        borrowers with credit scores below 580). In addition, 
        borrowers with credit score between 580 and 620 would 
        be required to have a 5% down payment;
          3.  Raise the FHA down payment requirement from 3.5% 
        to 5% whenever FHA's Capital Reserve Ratio drops below 
        the statutorily required 2%--(There is a 6-month delay 
        after enactment of the legislation to provide more time 
        for the housing market to improve);
          4.  Prohibit the Up-Front Premium from being financed 
        into the loan amount. This would ensure that the 
        borrower's Loan to Value (LTV) ratio will be a true 
        96.5% as intended by Congress when it changed the down 
        payment requirement from 3 percent to 3.5 percent as 
        part of HERA;
          5.  Reduce the 100 percent government guarantee of 
        FHA loans to 95 percent and require FHA-approved 
        lenders to retain 5 percent of the risk of each FHA 
        loans they underwrite.
    Homeownership is a noble goal and we must continue to look 
for ways to stabilize our housing market after a recent 
financial collapse. However, the benefits with promoting 
homeownership using government subsidies must be balanced 
against the potential risk of insuring less creditworthy 
borrowers and exposing the American taxpayer to that risk. The 
recent housing bust has taught us the importance of proper 
underwriting and ensuring potential homebuyers have the 
appropriate amount of personal funds invested in the 
transaction.
    As we wait for the private housing market to improve, it is 
essential that Congress takes steps to ensure that the FHA 
program remains viable and available to potential homeowners. 
The provisions in H.R. 5072 represent an important step toward 
addressing the shortfall in the FHA's insurance fund. However, 
we should do more to protect the taxpayer from having to suffer 
the consequences of bailing out another government housing 
program similar to Fannie Mae and Freddie Mac. The Garrett 
amendments simply ask lenders and borrowers to have more ``skin 
in the game.'' More skin in the game requires greater 
accountability. It's the very least we can do to protect the 
taxpayer.

                                   Scott Garrett.
                                   Ed Royce.
                                   Randy Neugebauer.
                                   Spencer Bachus.
                                   Jeb Hensarling.

                            ADDITIONAL VIEWS

    The FHA program is in dire need of real reform. I applaud 
Administrator Stevens for submitting changes to Congress; 
however, H.R. 5072, the FHA Reform Act of 2010 does not do 
enough to ensure the stability of the FHA program so it never 
reaches the tipping point of a future taxpayer bailout. To 
further illustrate my views on FHA reform, I have included the 
text of an article I wrote for Investor's Business Daily which 
was published on February 18, 2010. H.R. 5072, the FHA Reform 
Act of 2010, stops short of the necessary reforms I would like 
to see made to the FHA program.

            [From Investor's Business Daily, Feb. 18, 2010]

   Risky Mortgage Practices Live On At Federal Housing Administration

                     (By Representative Tom Price)

    Current economic and fiscal challenges demand a critical 
review of all federal programs with an eye toward positive, 
responsible reform. The Federal Housing Administration is one 
such program crying out for oversight and assessment. By every 
accounting measure, those used by private industry as well as 
government auditors, the FHA is bankrupt.
    If the FHA were treated like a bank, it would be labeled as 
``critically undercapitalized'' and folded up. By law, the 
agency is required to hold a 2% capital reserve. Yet according 
to its most recent actuarial review, it currently holds just a 
quarter of that, 0.53%.
    The FHA, however, is not a bank, and we all know the White 
House would never allow it to fail. This is because the FHA is 
a key cog in today's government-monopolized housing industry, 
serving as one of the primary tools wielded by the 
administration in its mortgage modification efforts.
    It's clear that the White House has not learned much from 
the mortgage meltdown, because rather than working to tamp down 
risky borrowing and mortgage practices, it is using the FHA to 
place them under the growing umbrella of federal backstops.
    A look back at the rise and bust of the housing market 
reveals that the danger of the over-leveraging which we had 
hoped would be tempered is now increasingly taking place at the 
FHA, on the taxpayers' dime and watch.
    The FHA serves as a federally backed mortgage insurance 
program. It does not originate loans, but instead guarantees 
100% of loan principal for borrowers and lenders. It insures 
loans up to a whopping $729,750, and requires a mortgage 
insurance premium, but only asks for a 3.5% down payment. If a 
borrower fails to pay his mortgage, the FHA steps in and pays 
the lender for the loss on the property.
    During the housing boom, the FHA saw a decrease in its 
market share, as borrowers could get more-attractive loan 
terms, for less money, from a private lender. And during this 
time, as more-qualified borrowers moved away from the FHA, 
less-qualified borrowers replaced them.
    From 2004 through 2007, those with FICO scores below 620, 
generally considered subprime borrowers, made up 35% to 45% of 
the FHA's entire loan portfolio. Conversely, borrowers with a 
strong FICO score of 700 or higher represented just 10% to 15% 
of its portfolio.
    In recent years, as the deterioration of the housing market 
became evident, private lenders began requiring higher down 
payments from borrowers and implemented more stringent 
underwriting standards. This could have been a helpful 
cleansing of bad practices. Instead, borrowers flocked to the 
FHA with its 3.5% down payment and 100% federal guarantee.
    In a response, which one could only deem a ``day late and a 
dollar short,'' last month FHA Director David Stevens announced 
measures to strengthen the FHA's capital reserves. Borrowers 
with FICO scores under 580--below subprime--will now be 
required to have a 10% down payment, an embarrassingly timid 
response.
    It raises the question, after all that's happened, should 
the government really be in the business of guaranteeing 
mortgages at subprime and below?
    At the end of the 2009 fiscal year, the FHA guaranteed $685 
billion and now insures an enormous 30% of all new home loan 
originations and 20% of refinanced loans. Plus, given the 
current conditions in the housing market, an unbelievable 80% 
of new borrowers with FHA guaranteed loans are first-time 
homebuyers.
    And with FHA dabbling in the riskiest of loans and heavily 
leveraged, we sadly expect the FHA's troubles to get worse 
before they get better. Astoundingly, as heard recently in 
testimony before the House Financial Services Committee, the 
agency has not accurately calculated borrowers who are already 
behind on mortgage payments into FHA's loss projections.
    But the really devastating inevitability is that taxpayers 
are in store for another open-ended bailout. As currently 
structured, excess premiums taken in by FHA are returned to the 
U.S. Treasury. But if the FHA's loan guarantee losses exceed 
its premiums, then the Treasury covers the difference.
    FHA's recent actuarial report notes that there is likely to 
be a continued decline in its portfolio through 2011. According 
to testimony before the House Financial Services Committee, the 
bailout of the FHA could reach $54 billion or more. So 
taxpayers who are already enraged by the era of stimulus and 
bailouts need look no further than this agency for the next 
episode of federal intervention.
    Put simply, it is time for a change in how the FHA 
operates. The agency must not compromise its underwriting 
standards in good times because private industry can offer a 
better product at a more competitive price. The FHA was not 
designed to replace the private loan market.
    Additionally, Congress must do its part to ensure that the 
FHA does not put the taxpayer at unnecessary and avoidable 
risk. This includes appropriately increasing the FHA down 
payment requirement to be more aligned with the risk its 
borrowers pose to the taxpayer.
    Most importantly, lenders should no longer be given a free, 
government-guaranteed ride with a 100% loss guarantee. As the 
FHA has rightly recognized, a 100% government guarantee with no 
lender ``skin in the game'' has eroded the solvency of FHA's 
balance sheet. While the agency has made some efforts to get 
tougher on lenders, the damage has already been done.
    Moving forward, in addition to an increase in down payment 
by borrowers, lenders must be subject to more stringent and 
regular oversight, and losses must first be taken by the lender 
before the government guarantee begins.
    Americans are calling for an end to the era of stimulus and 
bailouts. It's time for Washington to get tough with the FHA 
and straighten out its balance sheet. Failure to do so will 
only prolong the economic difficulties facing the housing 
sector and our great nation.
                                                         Tom Price.

                                  
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