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Text of the FHA Reform Act of 2011

This bill was introduced on May 24, 2011, in a previous session of Congress, but was not enacted. The text of the bill below is as of May 24, 2011 (Introduced).

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I

112th CONGRESS

1st Session

H. R. 1977

IN THE HOUSE OF REPRESENTATIVES

May 24, 2011

(for herself, Mr. Frank of Massachusetts, and Mr. Gutierrez) 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 and table of contents

(a)

Short title

This Act may be cited as the FHA Reform Act of 2011.

(b)

Table of contents

The table of contents for this Act is as follows:

Sec. 1. Short title and table of contents.

Sec. 2. Indemnification by mortgagees.

Sec. 3. Delegation of insuring authority.

Sec. 4. Authority to terminate mortgagee origination and underwriting approval.

Sec. 5. Deputy Assistant Secretary of FHA for Risk Management and Regulatory Affairs.

Sec. 6. Review of mortgagee performance.

Sec. 7. Coordination with State regulatory agencies.

Sec. 8. Reporting of mortgagee actions taken against other mortgagees.

Sec. 9. Review of downpayment requirements.

Sec. 10. Authorization to participate in the origination of FHA-insured loans.

Sec. 11. Default and origination information by loan servicer and originating direct endorsement lender.

Sec. 12. Third party servicer outreach.

Sec. 13. Maximum mortgage amount limits for multifamily housing.

Sec. 14. Mortgage insurance premium refunds.

2.

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.

.

3.

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.

4.

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

.

5.

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.

6.

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.

(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 2012 through 2016 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 2011 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.

.

7.

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:

(j)

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)).

.

8.

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.

.

9.

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)(2), 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)(2) 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 may subsequently reduce such requirement by such percentage or amount as the Secretary considers appropriate.

.

10.

Authorization to participate in the origination of FHA-insured loans

(a)

Single family mortgages

Section 203(b) of the National Housing Act (12 U.S.C. 1709(b)) is amended by striking paragraph (1) and inserting the following new paragraph:

(1)

Have been made to a mortgagee approved by the Secretary or to a person or entity authorized by the Secretary under section 202(d)(1) to participate in the origination of the mortgage, and be held by a mortgagee approved by the Secretary as responsible and able to service the mortgage properly.

.

(b)

Home equity conversion mortgages

Section 255(d) of the National Housing Act (12 U.S.C. 1715z–20(d)) is amended by striking paragraph (1) and inserting the following new paragraph:

(1)

have been originated by a mortgagee approved by, or by a person or entity authorized under section 202(d)(1) to participate in the origination by, the Secretary;

.

11.

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.

12.

Third party servicer outreach

(a)

Authority

The Secretary of Housing and Urban Development may, to the extent any amounts for fiscal year 2012 or 2013 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 (f)) 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;

(2)

available mortgage loan modification, refinance, and assistance programs; and

(3)

available counseling regarding financial management and credit risk.

(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)

Priority

In providing reimbursements under this section, the Secretary of Housing and Urban Development shall provide priority to independent third parties serving mortgagors under covered mortgages in areas experiencing a mortgage foreclosure rate and unemployment rate higher than the national average for the most recent 12-month period for which satisfactory data are available.

(f)

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).

13.

Maximum mortgage amount limits for multifamily housing

(a)

Elevator-Type structures

(1)

Amendments

The National Housing Act is amended in each of the provisions specified in paragraph (2)—

(A)

by inserting with sound standards of construction and design after elevator-type structures the first place such term appears; and

(B)

by striking to not to exceed and all that follows through sound standards of construction and design each place such terms appear and inserting by not more than 50 percent of the amounts specified for each unit size.

(2)

Provisions amended

The provisions of the National Housing Act specified in this paragraph are as follows:

(A)

Subparagraph (A) of section 207(c)(3) (12 U.S.C. 1713(c)(3)(A)).

(B)

Subparagraph (A) of section 213(b)(2) (12 U.S.C. 1715e(b)(2)(A)).

(C)

Subclause (I) of section 220(d)(3)(B)(iii) (12 U.S.C. 1715k(d)(3)(B)(iii)(I)).

(D)

In section 221(d) (12 U.S.C. 1715l(d))—

(i)

subclause (I) of paragraph (3)(ii); and

(ii)

subclause (I) of paragraph (4)(ii).

(E)

Subparagraph (A) of section 231(c)(2) (12 U.S.C. 1715v(c)(2)(A)).

(F)

Subparagraph (A) of section 234(e)(3) (12 U.S.C. 1715y(e)(3)(A)).

(b)

Extremely high-Cost areas

Section 214 of the National Housing Act (12 U.S.C. 1715d) is amended—

(1)

in the first sentence—

(A)

by inserting , or with respect to projects consisting of more than four dwelling units located in an extremely high-cost area as determined by the Secretary after or the Virgin Islands the first place such term appears;

(B)

by inserting , or to construct projects consisting of more than four dwelling units on property located in an extremely high-cost area as determined by the Secretary after or the Virgin Islands the second place such term appears; and

(C)

by inserting , or with respect to projects consisting of more than four dwelling units located in an extremely high-cost area as determined by the Secretary after or the Virgin Islands the third place such term appears;

(2)

in the second sentence—

(A)

by inserting , or with respect to a project consisting of more than four dwelling units located in an extremely high-cost area as determined by the Secretary, after or the Virgin Islands the first place such term appears; and

(B)

by inserting , or in the case of a project consisting of more than four dwelling units in an extremely high-cost area as determined by the Secretary, in such extremely high-cost area, after or the Virgin Islands the second place such term appears; and

(3)

in the section heading, by striking and the virgin islands and inserting the virgin islands, and extremely high-cost areas.

(c)

Effective date

The amendments made by this section shall apply to mortgages insured under title II of the National Housing Act after September 30, 2011.

14.

Mortgage insurance premium refunds

(a)

Authority

The Secretary of Housing and Urban Development shall, to the extent that amounts are made available pursuant to subsection (c), provide refunds of unearned premium charges paid at the time of insurance for mortgage insurance under title II of the National Housing Act (12 U.S.C. 1707 et seq.) to or on behalf of mortgagors under mortgages described in subsection (b).

(b)

Eligible mortgages

A mortgage described in this section is a mortgage on a one- to four-family dwelling that—

(1)

was insured under title II of the National Housing Act (12 U.S.C. 1707 et seq.);

(2)

is otherwise eligible, under the last sentence of subparagraph (A) of section 203(c)(2) of such Act (12 U.S.C. 1709(c)(2)(A)), for a refund of all unearned premium charges paid on the mortgage pursuant to such subparagraph, except that the mortgage—

(A)

was closed before December 8, 2004; and

(B)

was endorsed on or after such date.

(c)

Authorization of appropriations

There is authorized to be appropriated for each fiscal year such sums as may be necessary to provide refunds of unearned mortgage insurance premiums pursuant to this section.