H.R. 5266 — FHA Protection and Homeownership Preservation Act of 1990

HR 5266 IH
101st CONGRESS
2d Session
H. R. 5266
To provide for safety and soundness of the Mutual Mortgage Insurance Fund,
and for other purposes.
IN THE HOUSE OF REPRESENTATIVES
July 13. 1990
Mr. VENTO (for himself, Mr. RIDGE, Mr. FRANK, Mr. KLECZKA, Mr. LAFALCE,
Ms. OAKAR, Mr. BARNARD, Mr. LEHMAN of California, Mr. NELSON of Florida,
Mr. FLAKE, Mrs. SAIKI, Mr. PRICE, Ms. PELOSI, Mr. ENGEL, Mr. SMITH of Florida,
Mrs. LOWEY of New York, Mrs. LLOYD, Mr. TORRICELLI, Mr. AUCOIN, Mr. JOHNSON
of South Dakota, Mr. CRAIG, Mr. MCEWEN, Mr. BATES, Mr. DYSON, Mr. SERRANO,
Mr. MCCRERY, Mr. HANSEN, Mr. QUILLEN, Mrs. VUCANOVICH, Mr. THOMAS of Wyoming,
Mr. FORD of Tennessee, Mr. GORDON, Mr. VISCLOSKY, Mr. HASTERT, Mr. SCHIFF,
Mr. STARK, Mr. LANCASTER, Mr. FEIGHAN, Mr. MRAZEK, Mr. DORGAN of North
Dakota, Mr. PARKER, Mr. NAGLE, Mr. BRYANT, Mr. PORTER, Mr. SMITH of Vermont,
Mrs. MORELLA, Mr. SLATTERY, and Mr. BUECHNER) introduced the following bill;
which was referred to the Committee on Banking, Finance and Urban Affairs
A BILL
To provide for safety and soundness of the Mutual Mortgage Insurance Fund,
and for other purposes.
Be it enacted by the Senate and House of Representatives of the United
States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the `FHA Protection and Homeownership Preservation
Act of 1990'.
SEC. 2. FINDINGS AND PURPOSE.
(a) FINDINGS- The Congress finds that--
(1) currently, 6,500,000 homes throughout the United States are insured
through the most successful Federal program for homebuyers, the single
family home mortgage insurance program of the Federal Housing Administration
through the Mutual Mortgage Insurance Fund;
(2) 690,000 families used FHA mortgage insurance to buy a home during 1989
and 450,000 of the families were first-time homebuyers;
(3) the FHA single family mortgage insurance program was designed primarily
to serve first-time and low-downpayment homebuyers and 215,000, or 41
percent, of the first-time homebuyers utilizing the program in 1989 made
downpayments of less than 5 percent;
(4) an analysis and audit of the Mutual Mortgage Insurance Fund conducted
by an independent accounting firm has determined that if the FHA mortgage
insurance program is not modified, the Mutual Mortgage Insurance Fund is at
risk of becoming insolvent within the next decade, thereby jeopardizing
homeownership affordability for hundreds of thousands of persons and
families in the United States;
(5) an independent accounting firm has determined that the maintenance of
a capital ratio for the Mutual Mortgage Insurance Fund of 1.25 percent of
the insurance-in-force under the Fund is a standard sufficient to restore
actuarial soundness to the Fund and maintain such soundness even in adverse
economic conditions; and
(6) achieving a capital ratio for the Fund of 2.0 percent by the year
2000 is necessary to further ensure the continued solvency of the Mutual
Mortgage Insurance Fund for homebuyers in the future.
(b) PURPOSE- The purpose of this Act, therefore, is to maintain housing
opportunities for middle- and lower-income persons and families in the
United States through the Federal Housing Administration single family
home mortgage insurance program by ensuring the safety and soundness of
the Mutual Mortgage Insurance Fund for future homebuyers.
SEC. 3. MAXIMUM MORTGAGE AMOUNT.
(a) IN GENERAL- Section 203(b)(2) of the National Housing Act (12
U.S.C. 1709(b)(2)) is amended by inserting after `higher dollar amount.' the
following: `In no case may the insured principal obligation (including such
initial service charges, appraisal, inspection, mortgage insurance premiums,
and other fees as the Secretary shall approve) exceed the appraised value
of the property.'.
(b) CONFORMING AMENDMENT- Section 203(d) of the National Housing Act (12
U.S.C. 1709(d)) is amended by striking the period at the end and inserting
the following: `, except that this subsection shall not apply to the maximum
mortgage amount limitation in the third sentence of subsection (b)(2).'.
(c) EFFECTIVE DATE- The amendments made by this subsection shall apply to
mortgages insured on or after October 1, 1992.
SEC. 4. MORTGAGE INSURANCE PREMIUMS.
(a) PREMIUMS-
(1) IN GENERAL- Section 203(c) of the National Housing Act (12
U.S.C. 1709(c)) is amended--
(A) by inserting `(1)' after `(c)'; and
(B) by striking `: Provided, That with respect to mortgages' and all that
follows; and
(C) by adding at the end the following new paragraph:
`(2) With respect to mortgages on 1- to 4-family dwellings--
`(A) insured prior to the effective date of this paragraph, the Secretary
shall refund not more than 50 percent of the unearned premium upon prepayment
of the principal obligation; and
`(B) insured after the effective date of this paragraph, the Secretary
shall establish and collect--
`(i) at the time of insurance, a premium payment of 1.35 percent of the
amount of the original insured principal obligation of the mortgage,
which premium may be financed as a part of the mortgage loan; plus
`(ii) periodic premium payments of 0.6 percent of the remaining insured
principal balance, and shall not refund any portion of the premium in the
case of prepayment of the principal obligation.'.
(2) EFFECTIVE DATE- The amendments made by this section shall take effect
on October 1, 1995.
(b) TRANSITION RULES-
(1) PREMIUM CHANGES- Notwithstanding section 203(c) of the National Housing
Act, mortgage insurance premiums for mortgages subject to section 203(b)
of such Act for which mortgages are insured during fiscal years 1991
through 1996 shall be payable as provided in the following table:
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Fiscal Year of Execution of Mortgage Percentage of Principal Obligation Paid
as Premium at the Time the Mortgage is insured Premium Payable in Periodic
Payments (expressed as percentage of principal obligation)
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1991-1992
3.75%
.24%
1993-1995
2.15%
.48%
1996
1.35%
.60%
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(2) REFUNDS-
(A) Except as provided in subparagraph (B), upon prepayment of a mortgage
that was insured at any time prior to October 1, 1995, the Secretary shall
refund not more than 50 percent of the unearned premium.
(B) Upon prepayment of a mortgage for which insurance is issued during
fiscal years 1991 through 1995, the Secretary shall not refund a portion
of the premium paid at the time of insurance that equals 1.35 percent
of the original insured principal obligation. The Secretary shall refund
not more than 50 percent of any unearned premium in excess of the amount
referred to in the preceding sentence.
SEC. 5. MUTUAL MORTGAGE INSURANCE FUND DISTRIBUTIONS.
Section 205 of the National Housing Act (12 U.S.C. 1711) is amended by
adding at the end the following new subsection:
`(e) In determining whether there is a surplus for distribution to mortgagors
under this section, the Secretary shall take into account the actuarial
status of the entire Fund.'.
SEC. 6. ACTUARIAL SOUNDNESS OF MUTUAL MORTGAGE INSURANCE FUND.
Section 205 of the National Housing Act (12 U.S.C. 1711), as amended by
the preceding provisions of this Act, is further amended by adding at the
end the following new subsections:
`(f)(1) The Secretary shall ensure that the Mutual Mortgage Insurance Fund
attains a capital ratio of not less than 1.25 percent within 24 months
after the date of the enactment of this subsection.
`(2) The Secretary shall ensure that the Mutual Mortgage Insurance Fund
attains a capital ratio of not less than 2.0 percent within 10 years after
the date of the enactment of this subsection, and shall ensure that the
Fund maintains at least such capital ratio at all times thereafter.
`(3) Upon the expiration of the 24-month period beginning on the date of the
enactment of this subsection, the Secretary shall submit to the Congress a
report describing the actions the Secretary will take to ensure that the
Mutual Mortgage Insurance Fund attains the capital ratio required under
paragraph (2).
`(4) For purposes of this subsection:
`(A) The term `capital' means the economic net worth of the Mutual Mortgage
Insurance Fund, as determined by the Secretary under the annual audit
required under section 538.
`(B) The term `economic net worth' means the current cash available to the
Fund, plus the net present value of all future cash inflows and outflows
expected to result from the outstanding mortgages in the Fund.
`(C) The term `capital ratio' means the ratio of capital to unamortized
insurance-in-force.
`(D) The term `unamortized insurance-in-force' means the remaining
obligation on outstanding mortgages which are obligations of the Mutual
Mortgage Insurance Fund, as estimated by the Secretary.
`(g) The Secretary shall annually conduct an independent actuarial study
of the Mutual Mortgage Insurance Fund and shall report annually to the
Congress on the financial status of the Fund.
`(h)(1) If, pursuant to the independent annual actuarial study of
the Mutual Mortgage Insurance Fund required under subsection (g), the
Secretary determines that the Mutual Mortgage Insurance Fund is not
meeting the operational goals under paragraph (2), the Secretary may not
issue distributions, and may, by regulation, propose and implement any
adjustments to the insurance premiums under section 203(c), or any other
program requirements established by the Secretary necessary to achieve such
goals. Upon determining that a premium or other change is appropriate under
the preceding sentence, the Secretary shall immediately notify Congress of
the proposed change and the reasons for the change. Such premium change
shall take effect not earlier than 90 days following such notification,
unless the Congress acts during such time to increase, prevent, or modify
the change.
`(2) The operational goals referred to in paragraph (1) shall be--
`(A) maintaining an adequate capital ratio;
`(B) meeting the needs of homebuyers with low downpayments and first-time
homebuyers by providing access to mortgage credit; and
`(C) minimizing the risk to the Fund and to homeowners from homeowner
default.'.
SEC. 7. PERIODIC MORTGAGE INSURANCE SAFETY AND SOUNDNESS PREMIUM.
Section 203(c) of the National Housing Act (12 U.S.C. 1709(c)), as amended
by the preceding provisions of this Act, is further amended by adding at
the end the following new paragraph:
`(3) Notwithstanding any other provision of law, the Secretary may
require payment on all mortgages that are obligations of the Mutual
Mortgage Insurance Fund of an additional premium charge on a periodic
basis as determined by the Secretary to be consistent with sound actuarial
practice. Such determination shall be in accordance with the findings of
the annual actuarial study of the Mutual Mortgage Insurance Fund required
under section 205(e). The additional premium charge may not exceed an
amount equivalent to one-half of 1 percent per year of the amount of the
principal obligation of the mortgage outstanding at any time, without
taking into account delinquent payments or prepayments.'.

FHA Protection and Homeownership Preservation Act of 1990

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