H.R. 5072 (111th): FHA Reform Act of 2010

111th Congress, 2009–2010. Text as of Apr 20, 2010 (Introduced).

Status & Summary | PDF | Source: GPO

I

111th CONGRESS

2d Session

H. R. 5072

IN THE HOUSE OF REPRESENTATIVES

April 20, 2010

(for herself, Mrs. Capito, Mr. Frank of Massachusetts, and Mr. Al Green of Texas) introduced the following bill; which was referred to the Committee on Financial Services

A BILL

To improve the financial safety and soundness of the FHA mortgage insurance program.

1.

Short title

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

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.

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.

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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.

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

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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.

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(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.

7.

Use of outside credit risk analysis sources

Section 202 of the National Housing Act (12 U.S.C. 1708) is amended by adding at the end the following new subsection:

(i)

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.

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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.

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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:

(j)

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.

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(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.

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(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:

(k)

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)).

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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:

(k)

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.

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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

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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.

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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.

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(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.

14.

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 of the various 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.