[House Report 112-544]
[From the U.S. Government Publishing Office]
112th Congress Report
HOUSE OF REPRESENTATIVES
2d Session 112-544
======================================================================
FHA EMERGENCY FISCAL SOLVENCY ACT OF 2012
_______
June 20, 2012.--Committed to the Committee of the Whole House on the
State of the Union and ordered to be printed
_______
Mr. Bachus, from the Committee on Financial Services, submitted the
following
R E P O R T
together with
DISSENTING VIEWS
[To accompany H.R. 4264]
[Including cost estimate of the Congressional Budget Office]
The Committee on Financial Services, to whom was referred
the bill (H.R. 4264) to help ensure the fiscal solvency of the
FHA mortgage insurance programs of the Secretary of Housing and
Urban Development, and for other purposes, having considered
the same, report favorably thereon without amendment and
recommend that the bill do pass.
Purpose and Summary
H.R. 4264, the FHA Emergency Fiscal Solvency Act of 2012,
provides the Federal Housing Administration (FHA) with the
tools it needs to protect the Mutual Mortgage Insurance Fund
(MMIF) from becoming insolvent. The bill sets minimum annual
premiums for mortgage insurance, requires lenders that
committed fraud to reimburse the FHA for mortgage-insurance
losses, bars unscrupulous lenders from participating in the
FHA's mortgage insurance programs, and directs the FHA to
implement internal fiscal oversight.
Background and Need for Legislation
The FHA was established as an agency of the Department of
Housing and Urban Development (HUD) by the National Housing Act
of 1934 to provide federal mortgage insurance in order to
broaden homeownership, protect lending institutions, and
stimulate the building industry. Before the FHA was
established, home mortgages did not exceed 50 percent of home
values and were short term, lasting no longer than five years.
At the end of the fifth year, homeowners had to pay their
mortgages in full or roll them over into another loan. During
the Great Depression, lenders were unable or unwilling to roll
over loans that came due. As a result, many borrowers lost
their homes to foreclosure and lenders lost money because
property values declined significantly. The creation of the FHA
provided stability and liquidity to the mortgage market and
fostered the introduction of the 30-year mortgage and mortgage
standardization.
During the housing boom of the mid-2000s through 2006, the
FHA's share of the mortgage market fell to under two percent of
mortgage originations (measured by dollar volume). But as
housing prices began to fall, lenders tightened their
underwriting criteria and the FHA began to play a larger role
in the mortgage market. The Congressional Research Service
reported that during FY 2010, the FHA guaranteed nearly 40
percent of the home-purchase mortgages that were originated or
refinanced, which corresponds to approximately 1.1 million
homebuyers. FY 2010 was the second time that the FHA has
assisted more than 1 million homebuyers in a single year. As a
result of these trends, the FHA is now the largest government
insurer of mortgages in the world, with a mortgage portfolio of
7.4 million loans and a combined unpaid principal balance of
over $1 trillion.
The FHA is intended to be self-funded: the premiums paid by
homeowners for FHA mortgage insurance are supposed to defray
the costs of running the program and to cover losses when loans
default. But while the FHA's market share has been growing, the
FHA--like most other participants in the mortgage market--has
been faced with higher default rates. The FHA thus finds itself
supporting the mortgage market by insuring new home loans as it
seeks to reinforce the stability of its single-family MMIF. By
statute, the FHA is required to maintain the MMIF's capital
reserve ratio at 2 percent or greater. The capital reserve
ratio was first required in the Omnibus Budget Reconciliation
Act of 1990, when there was significant concern that the FHA
would deplete its capital and require federal appropriations to
continue. In the years since the capital reserve ratio was
adopted, the FHA's ability to meet the capital reserve
requirement has served as a measure of the health of the MMIF.
On November 15, 2011, HUD released the FHA's FY 2011
Actuarial Report, prepared for HUD by an independent auditor.
The Actuarial Report showed deterioration of the MMIF's capital
reserve ratio, which fell to 0.24 percent in FY 2011. The FY
2011 Actuarial Report also noted that as of the end of FY 2011,
the MMIF's economic value--which is the MMIF's existing capital
resources plus the net present value of FHA's current book of
business--was $1.19 billion, a decrease of 77 percent from the
MMIF's $5.16 billion economic value as of the end of FY 2010.
The fall in the MMIF's economic value was caused by declines in
national home prices of more than five percent, more loans
having elevated default potential, and uncertain economic
conditions. The FY 2011 Actuarial Report concluded that under
more pessimistic economic scenarios than the Actuarial Report's
base-case assumptions, the MMIF's economic value may be
negative beginning in FY 2012 through FY 2018.
Today, the FHA faces its most serious fiscal challenge. In
its FY 2011 annual report to Congress, the FHA acknowledged
that ``[c]laim expenses were greater than the sum of premium
revenue and property recoveries for the year.'' In other words,
the FHA now spends more than it collects. In February 2012, the
President's FY 2013 budget proposal confirmed the FHA's
finances were in a precarious condition, projecting that the
FHA could be required to draw $688 million in emergency funds
from Treasury to build up the insurance fund.
As a result of the MMIF's falling capital reserves, the FHA
is vulnerable to further defaults. If the MMIF were exhausted
and the FHA lacked funds to pay insurance claims, the Treasury
would be forced to cover lenders' claims directly. Because the
FHA's guarantees are backed by the federal government, a large
number of defaults could result in significant losses to the
FHA that would ultimately be borne by taxpayers. The
deteriorating financial position of the FHA's capital reserve
funds raises concerns that in the same way that Fannie Mae and
Freddie Mac were bailed out by taxpayers, the FHA could also
expose taxpayers to further risk.
Apart from the FHA's parlous financial condition, there is
also great concern that the FHA, as of the end of 2011,
controlled well over half of the mortgage insurance market.
Given the consensus among policymakers that government should
facilitate the return of private capital to the housing finance
market, the government's continued dominance of the mortgage
insurance market remains troubling. H.R. 4264 would not only
protect taxpayers from the government's exposure to losses
resulting from its presence in the mortgage insurance market,
it would also, through its premium structure, level the playing
field so that the private sector could provide mortgage
insurance on competitive terms. In addition, H.R. 4264 gives
the FHA the tools it needs to implement reforms that bolster
the FHA's reserves and reduce taxpayer risk.
Hearings
The Subcommittee on Insurance, Housing, and Community
Opportunity held a hearing on May 25, 2011, titled
``Legislative Proposals to Determine the Future Role of FHA,
RHS and GNMA in the Single- and Multi-Family Mortgage
Markets.'' The following witnesses testified:
Ms. Katherine M. Alitz, Senior Vice
President, Boston Capital, on behalf of the Council for
Affordable and Rural Housing
Mr. Michael D. Berman, Chairman, Mortgage
Bankers Association
Mr. Mark A. Calabria, Director of Financial
Regulation Studies, Cato Institute, Washington, DC
Mr. Peter Carey, President and CEO, Self-
Help Enterprises, on behalf of the Housing Assistance
Council and the National Rural Housing Coalition
Mr. Brian Chappelle, Partner, Potomac
Partners
Mr. Peter W. Evans, Partner, Moran &
Company, on behalf of the National Multi Housing
Council and the National Apartment Association
Mr. Basil Petrou, Managing Partner, Federal
Financial Analytics, Inc.
Mr. Ron Phipps, Broker, Phipps Realty, on
behalf of the National Association of Realtors
Mr. Barry Rutenberg, First Vice Chairman,
National Association of Home Builders
The Subcommittee on Insurance, Housing, and Community
Opportunity held a hearing on September 8, 2011, titled
``Legislative Proposals to Determine the Future Role of FHA,
RHS and GNMA in the Single- and Multi-Family Mortgage Markets,
Part II.'' The following witnesses testified:
PANEL I
The Honorable Johnny Isakson (R-GA), United
States Senate
PANEL II
Mrs. Carol Galante, Acting Federal Housing
Administration Commissioner and Assistant Secretary for
Housing, Department of Housing and Urban Development
Ms. Tammye Trevino, Administrator, Housing
and Community Facilities Programs, Department of
Agriculture's Rural Development Agency
The Honorable Theodore ``Ted'' Tozer,
President, Government National Mortgage Association
The Committee on Financial Services held a hearing on
December 1, 2011, titled ``Perspectives on the Health of the
FHA Single-family Insurance Fund.'' The following witnesses
testified:
PANEL I
The Honorable Shaun Donovan, Secretary, U.S.
Department of Housing and Urban Development
PANEL II
Mr. Mathew Scire, Director, Financial
Markets and Community Investment, U.S. Government
Accountability Office
Dr. Andrew Caplin, Professor of Economics,
Department of Economics, New York University
Mr. Patrick Sinks, President and Chief
Operating Officer, Mortgage Guaranty Insurance
Corporation, on behalf of the Mortgage Insurance
Companies of America
Ms. Debra W. Still, Chairman-Elect, Mortgage
Bankers Association
Mr. Moe Veissi, President, National
Association of Realtors
Ms. Sarah Rosen Wartell, Executive Vice
President, Center for American Progress
Committee Consideration
The Committee on Financial Services met in open session on
March 27, 2012, and ordered H.R. 4264 favorably reported to the
House by 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. A
motion by Chairman Bachus to report the bill, as amended, to
the House with a favorable recommendation was agreed to by
voice vote.
During consideration of H.R. 4264 by the Committee, the
following amendments were considered:
1. An amendment offered by Mr. Westmoreland, no. 2, to
reduce FHA's insurance guarantee from 100% of loan value to 80%
for mortgages insured after date of enactment, was not agreed
to by a record vote of 18 yeas and 36 nays (Record vote no. FC-
65).
RECORD VOTE NO. FC-65
----------------------------------------------------------------------------------------------------------------
Representative Aye Nay Present Representative Aye Nay Present
----------------------------------------------------------------------------------------------------------------
Mr. Bachus..................... X ........ ......... Mr. Frank (MA)... ........ X .........
Mr. Hensarling................. X ........ ......... Ms. Waters....... ........ ........ .........
Mr. King (NY).................. ........ X ......... Mrs. Maloney..... ........ ........ .........
Mr. Royce...................... X ........ ......... Mr. Gutierrez.... ........ X
Mr. Lucas...................... ........ X ......... Ms. Velazquez.... ........ X
Mr. Paul....................... ........ ........ ......... Mr. Watt......... ........ X
Mr. Manzullo................... ........ X ......... Mr. Ackerman..... ........ X
Mr. Jones...................... ........ ........ ......... Mr. Sherman...... ........ X
Mrs. Biggert................... ........ X ......... Mr. Meeks........ ........ ........ .........
Mr. Gary G. Miller (CA)........ ........ X ......... Mr. Capuano...... ........ X
Mrs. Capito.................... ........ X ......... Mr. Hinojosa..... ........ X
Mr. Garrett.................... X ........ ......... Mr. Clay......... ........ X
Mr. Neugebauer................. X ........ ......... Mrs. McCarthy ........ X
(NY).
Mr. McHenry.................... X ........ ......... Mr. Baca......... ........ X
Mr. Campbell................... ........ X ......... Mr. Lynch........ ........ X
Mrs. Bachmann.................. X ........ ......... Mr. Miller (NC).. ........ X
Mr. McCotter................... X ........ ......... Mr. David Scott ........ X
(GA).
Mr. McCarthy (CA).............. X ........ ......... Mr. Al Green (TX) ........
Mr. Pearce..................... X ........ ......... Mr. Cleaver...... ........ X .........
Mr. Posey...................... ........ X ......... Ms. Moore........ ........ X .........
Mr. Fitzpatrick................ ........ X ......... Mr. Ellison...... ........ X .........
Mr. Westmoreland............... X ........ ......... Mr. Perlmutter... ........ X .........
Mr. Luetkemeyer................ ........ X ......... Mr. Donnelly..... ........ X .........
Mr. Huizenga................... X ........ ......... Mr. Carson....... ........ ........ .........
Mr. Duffy...................... X ........ ......... Mr. Himes........ ........ X .........
Ms. Hayworth................... ........ X ......... Mr. Peters....... ........ X .........
Mr. Renacci.................... ........ X ......... Mr. Carney....... ........ X .........
Mr. Hurt....................... X ........ .........
Mr. Dold....................... ........ X .........
Mr. Schweikert................. X ........ .........
Mr. Grimm...................... ........ X .........
Mr. Canseco.................... X ........ .........
Mr. Stivers.................... X ........ .........
Mr. Fincher.................... X
----------------------------------------------------------------------------------------------------------------
2. An amendment offered by Mr. Westmoreland, no. 3, to
require FHA to charge the maximum annual premium allowed,
establish more stringent underwriting standards, and charge an
additional risk-based annual premium, until its Mutual Mortgage
Insurance Fund (MMIF) regains its statutorily required 2%
minimum capital ratio, was not agreed to by a record vote of 19
yeas and 38 nays (Record vote no. FC-66).
RECORD VOTE NO. FC-66
----------------------------------------------------------------------------------------------------------------
Representative Aye Nay Present Representative Aye Nay Present
----------------------------------------------------------------------------------------------------------------
Mr. Bachus..................... X ........ ......... Mr. Frank (MA)... ........ X .........
Mr. Hensarling................. X ........ ......... Ms. Waters....... ........ X .........
Mr. King (NY).................. ........ X ......... Mrs. Maloney..... ........ X .........
Mr. Royce...................... X ........ ......... Mr. Gutierrez.... ........ X .........
Mr. Lucas...................... ........ X ......... Ms. Velazquez.... ........ X .........
Mr. Paul....................... ........ ........ ......... Mr. Watt......... ........ X .........
Mr. Manzullo................... ........ X ......... Mr. Ackerman..... ........ X .........
Mr. Jones...................... ........ ........ ......... Mr. Sherman...... ........ X .........
Mrs. Biggert................... ........ X ......... Mr. Meeks........ ........ ........ .........
Mr. Gary G. Miller (CA)........ ........ X ......... Mr. Capuano...... ........ X .........
Mrs. Capito.................... ........ X ......... Mr. Hinojosa..... ........ X .........
Mr. Garrett.................... X ........ ......... Mr. Clay......... ........ X .........
Mr. Neugebauer................. X ........ ......... Mrs. McCarthy ........ X .........
(NY).
Mr. McHenry.................... X ........ ......... Mr. Baca......... ........ X .........
Mr. Campbell................... ........ X ......... Mr. Lynch........ ........ X .........
Mrs. Bachmann.................. X ........ ......... Mr. Miller (NC).. ........ X .........
Mr. McCotter................... X ........ ......... Mr. David Scott ........ X .........
(GA).
Mr. McCarthy (CA).............. X ........ ......... Mr. Al Green (TX) ........ ........ .........
Mr. Pearce..................... X ........ ......... Mr. Cleaver...... ........ X .........
Mr. Posey...................... ........ X ......... Ms. Moore........ ........ X .........
Mr. Fitzpatrick................ ........ X ......... Mr. Ellison...... ........ X .........
Mr. Westmoreland............... X ........ ......... Mr. Perlmutter... ........ X .........
Mr. Luetkemeyer................ X ........ ......... Mr. Donnelly..... ........ X .........
Mr. Huizenga................... X ........ ......... Mr. Carson....... ........ X .........
Mr. Duffy...................... ........ X ......... Mr. Himes........ ........ X .........
Ms. Hayworth................... ........ X ......... Mr. Peters....... ........ X .........
Mr. Renacci.................... X ........ ......... Mr. Carney....... ........ X .........
Mr. Hurt....................... X ........ .........
Mr. Dold....................... ........ X .........
Mr. Schweikert................. X ........ .........
Mr. Grimm...................... ........ X .........
Mr. Canseco.................... X ........ .........
Mr. Stivers.................... X ........ .........
Mr. Fincher.................... X ........ .........
----------------------------------------------------------------------------------------------------------------
The following amendment was also considered by the
Committee:
1. An amendment offered by Mr. Fitzpatrick, no. 1, to
permanently remove the statutory cap on the number of Home
Equity Conversion Mortgages (HECMs), was offered and withdrawn.
Committee Oversight Findings
Pursuant to clause 3(c)(1) of rule XIII of the Rules of the
House of Representatives, the Committee has 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 objective of H.R. 4264, the FHA Emergency Fiscal
Solvency Act of 2012, is to provide the Federal Housing
Administration (FHA) with the tools it needs to protect the
Mutual Mortgage Insurance Fund (MMIF) from becoming insolvent.
The bill sets minimum annual premiums for mortgage insurance,
requires lenders that committed fraud to reimburse the FHA for
mortgage-insurance losses, bars unscrupulous lenders from
participating in the FHA's mortgage insurance programs, and
directs the FHA to implement internal fiscal oversight.
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:
H.R. 4264--FHA Emergency Fiscal Solvency Act of 2012
Summary: H.R. 4264 would make several changes to current
law aimed at improving the financial safety and soundness of
the Federal Housing Administration's (FHA's) single-family
program. That program offers federal guarantees on certain home
mortgages; cash flows associated with the loan guarantees are
recorded in the budget in the Mutual Mortgage Insurance Fund
(MMIF). The bill would require an independent actuarial review
of the MMIF during periods when the fund's capital ratio falls
below 2 percent, establish positions related to risk management
at FHA and the Government National Mortgage Association (GNMA),
and require FHA to make other administrative changes to the
processes they use to oversee the single-family program.
CBO estimates that implementing H.R. 4264 would cost $11
million over the 2013-2017 period, subject to the availability
of appropriated funds. This legislation would not affect direct
spending or revenues; therefore, pay-as-you-go procedures do
not apply.
H.R. 4264 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. 4264 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--
-------------------------------------------------------
2013 2014 2015 2016 2017 2013-2017
----------------------------------------------------------------------------------------------------------------
CHANGES IN SPENDING SUBJECT TO APPROPRIATION
Actuarial Studies:
Estimated Authorization Level....................... 3 3 1 1 1 9
Estimated Outlays................................... 3 3 1 1 1 9
Other Costs:
Estimated Authorization Level....................... * * * * * 2
Estimated Outlays................................... * * * * * 2
Total Changes:
Estimated Authorization Level................... 3 3 1 2 2 11
Estimated Outlays............................... 3 3 1 2 2 11
----------------------------------------------------------------------------------------------------------------
Note: * = less than $500,000.
Basis of estimate: For this estimate, CBO assumes that the
bill will be enacted in late 2012 and that the necessary
amounts will be appropriated each year.
Actuarial studies
Currently, an independent actuarial review of the MMIF is
performed on an annual basis. H.R. 4264 would require the MMIF
to be reviewed semiannually if the fund fails to maintain the
statutorily mandated 2 percent capital ratio. (The capital
ratio measures FHA's cash on hand relative to the number of all
outstanding mortgages insured by the agency.) FHA estimates
that the capital ratio has been below 2 percent since 2009;
prior to that, the ratio fell below 2 percent once in 1994.
Currently, FHA expects that the capital ratio will reach or
exceed 2 percent by 2015. According to FHA, an actuarial review
costs about $3 million. CBO expects that under the bill
additional actuarial reviews would have to be performed in 2013
and 2014, at a cost of $6 million over those two years.
Although FHA anticipates that the capital ratio for MMIF
will increase to 2 percent by 2015, there is some probability
that this may not happen and that additional actuarial reviews
would be necessary. CBO estimates that there is about a 20
percent chance that the capital ratio could be below 2 percent
in any year, given that it has fallen below this level four
times in the last 19 years. Considering the probability that
additional actuarial reviews would be needed, CBO estimates
that enacting this provision would cost about $3 million over
the 2015-2017 period.
Other costs
Implementing H.R. 4264 would change the processes used by
FHA to oversee the single-family loan program. For example, the
bill would require a review of any mortgages that default
within 24 months of being originated. In addition, H.R. 4264
would establish two new positions: Deputy Assistant Secretary
for Risk Management and Regulatory Affairs within FHA, and
Chief Risk Officer within GNMA. H.R. 4264 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.
In total, CBO estimates that these other requirements under
H.R. 4264 would cost $2 million over the 2013-2017 period,
subject to the availability of appropriated funds.
Finally, under H.R. 4264 the annual mortgage insurance
premium charged by FHA could not be less than 0.55 percent or
more than 2.05 percent of the outstanding loan balance. Because
CBO does not anticipate that FHA's annual premiums will be
adjusted over the next five years as a result of enacting this
legislation, this provision would have no budgetary impact.
Pay-As-You-Go considerations: None.
Intergovernmental and private-sector impact: H.R. 4264
contains no intergovernmental or private-sector mandates as
defined in UMRA and would impose no costs on state, local, or
tribal governments.
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.
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 the section
102(b)(3) of the Congressional Accountability Act.
Earmark Identification
H.R. 4264 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 and table of contents
This Act may be cited as the ``FHA Emergency Fiscal
Solvency Act of 2012''.
Section 2. FHA annual mortgage insurance premiums
Section 2 requires the Department of Housing and Urban
Development (HUD) to establish a minimum annual mortgage
insurance premium of not less than 0.55 percent of the
remaining insured principal balance. The section also gives HUD
the discretion to charge an annual premium of up to 2.0/2.05
percent. This provision will take effect six months after the
date of the bill's enactment.
Section 3. Indemnification by FHA mortgagees
Section 3 permits HUD to require indemnification from a
mortgagee if HUD determines that the mortgagee knew, or should
have known, of a serious or material violation of HUD's
mortgage underwriting standards for FHA loans. If fraud or
misrepresentation was involved in the origination or
underwriting of the FHA mortgage, HUD may require the mortgagee
to indemnify HUD regardless of when an insurance claim is paid.
This section also requires HUD to establish a process for
lenders to appeal HUD's indemnification determinations, and to
issue regulations to implement this section, to report on the
number of fraudulent or improperly underwritten loans, and to
report on the effect on FHA's insurance fund when
indemnification is required.
Section 4. Early period delinquencies
Section 4 requires HUD to analyze and report on ``early
period delinquencies'' (defined as a mortgage that becomes 90
or more days delinquent within the first 24 months of the loan)
for FHA loans and to seek indemnification from lenders for
early period delinquencies.
Section 5. Semiannual actuarial studies of MMIF during periods of
capital depletion
Section 5 requires HUD to provide an independent actuarial
report on the FHA semiannually, rather than annually, if the
FHA fails to maintain its 2.0% capital ratio requirement. This
section also requires that HUD analyze the cost and feasibility
of providing an independent actuarial study on a quarterly
basis.
Section 6. Delegation of FHA insuring authority
To implement Section 3 of the legislation, Section 6
strikes subsection (c) of Section 256 of the National Housing
Act, which authorized HUD to indemnify mortgagees for losses
resulting from FHA mortgages that were not originated in
accordance with HUD's requirements, or when fraud or
misrepresentation were involved in the mortgage's origination.
Section 7. Authority to terminate FHA mortgagee origination and
underwriting approval
Section 7 authorizes HUD to review mortgagee performance in
a specific geographic area or across the nation, and to
terminate the approval of the mortgagee to originate or
underwrite FHA mortgages in a specific area or nationwide if
HUD finds that a mortgagee has an excessive rate of early
defaults or claims.
Section 8. Authorization to participate in the origination of FHA-
insured loans
Section 8 states that an FHA mortgage must be originated by
a mortgagee approved by HUD or by a person authorized by the
HUD Secretary to originate FHA mortgages, and that the mortgage
is to be held by a mortgagee approved by HUD that can service
the mortgage properly. FHA reverse mortgages must also be
originated by a mortgagee, person or entity approved by the HUD
Secretary.
Section 9. Reporting of mortgagee actions taken against other
mortgagees
Section 9 instructs the HUD Secretary to require lenders,
as a condition of FHA approval, to report to the FHA any action
to terminate other lenders based a determination of fraud or
material misrepresentation in connection with the origination
of FHA mortgages within 15 days of such action.
Section 10. Default and origination information by loan servicer and
originating direct endorsement lender
Section 10 amends the FHA reporting requirements for early
payment delinquencies to require the HUD Secretary to track
mortgage performance by loan servicer.
Section 11. Deputy Assistant Secretary of FHA for Risk Management and
Regulatory Affairs
Section 11 creates a position within the FHA for a Deputy
Assistant Secretary for Risk Management and Regulatory Affairs.
The position is to be filled by the HUD Secretary and reports
to the FHA Commissioner on the management and mitigation of
risk to FHA mortgage insurance funds.
Section 12. Establishment of Chief Risk Officer for GNMA
Section 12 establishes a position of Chief Risk Officer for
the Government National Mortgage Association (GNMA). The
position is to be filled by the HUD Secretary with a career
appointee who must have practical experience in risk evaluation
practices in large governmental entities. The Chief Risk
Officer need not obtain GNMA or HUD approval before submitting
reports, recommendations, and testimony to Congress.
Section 13. Report of mortgage servicers
Section 13 instructs the HUD Secretary to report on
mortgage servicer compliance with the FHA's guidelines on loan
servicing, loss mitigation, and insurance claim submission. The
report must include an estimate of annual costs to FHA, since
2008, resulting from failures by mortgage servicers to comply
with the FHA's guidelines. The HUD Secretary is to submit the
report to Congress, including any legislative or administrative
recommendations, within 120 days of the bill's enactment.
Section 14. FHA emergency capital plan
Section 14 directs the HUD Secretary to submit to Congress,
thirty days after the bill's enactment, an emergency capital
plan for the restoration of the FHA's fiscal solvency. The plan
would provide a detailed explanation of how the FHA's capital
assets are monitored and tracked; how to ensure the FHA's
financial safety without borrowing funds from the U.S.
Department of Treasury; and describe how, if necessary, the FHA
would draw down funds from the Treasury. If the FHA remains
below the 2.0 percent capital reserve ratio, the FHA is to
submit monthly reports to Congress that assess the financial
status of the FHA, outline the FHA's capital reserve ratio, and
describe actions the FHA undertakes to establish a capital
reserve ratio above 2.0 percent. The requirement for the FHA to
submit monthly reports would terminate once the FHA achieved a
capital reserve ratio of 2.0 percent.
Section 15. FHA safety and soundness review
Section 15 directs the Government Accountability Office to
provide for an independent third party to conduct a safety and
soundness review of the FHA's mortgage insurance programs and
report on its findings. This one-time independent review is to
be conducted in accordance with generally accepted accounting
principles applicable to the private sector. The third party's
report is to describe the methodology and standards used to
conduct the independent review and include recommendations for
restoring the FHA's reserve funds and capital.
Section 16. FHA disclosure standards
Section 16 directs HUD, within 90 days of the bill's
enactment, to review and revise the standards and requirements
for its annual actuarial report and quarterly reports to ensure
that these reports provide meaningful financial information, do
not contain misrepresentations, and make available all relevant
information, and to prohibit material omissions in these
reports that would make them misleading.
Section 17. Report on streamlining FHA programs
Section 17 directs HUD to study the FHA's mortgage
insurance programs to assess the need for these programs, to
identify insurance programs that are unused or underused, and
to identify methods for streamlining, consolidating,
simplifying, increasing the efficiency of, and reducing the
number of these programs. HUD is required to submit this study
to Congress within 12 months of the bill's enactment.
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.--] (4)
Independent actuarial study.--
(A) Annual study.--The Secretary shall
provide for an independent actuarial study of
the Fund to be conducted annually, except as
provided in subparagraph (B), which shall
analyze the financial position of the Fund. The
Secretary shall submit a report annually,
except as provided in subparagraph (B), to the
Congress describing the results of such study
and assessing the financial status of 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.
(B) Semiannual studies during periods of
capital depletion.--During any period that the
Fund fails to maintain sufficient capital to
comply with the capital ratio requirement under
section 205(f)(2)--
(i) the independent study required by
subparagraph (A) shall be conducted
semiannually and shall analyze the
financial position of the Fund as of
September 30 and March 31 of each
fiscal year during such period; and
(ii) the Secretary shall submit a
report meeting the requirements of
subparagraph (A) for each such
semiannual study.
* * * * * * *
(8) Programmatic review of early period
delinquencies.--The Secretary shall establish and
maintain a program--
(A) to review the cause of each early period
delinquency on a mortgage that is an obligation
of the Mutual Mortgage Insurance Fund;
(B) to require indemnification of the
Secretary for a loss associated with any such
early period delinquency that is the result of
a material violation, as determined by the
Secretary, of any provision, regulation, or
other guideline established or promulgated
pursuant to this title; and
(C) to publicly report--
(i) a summary of the results of all
early period delinquencies reviewed
under subparagraph (A);
(ii) any indemnifications required
under subparagraph (B); and
(iii) the financial impact on the
Mutual Mortgage Insurance Fund of any
such indemnifications.
(9) Definition of early period delinquency.--For
purposes of this section, the term ``early period
delinquency'' means, with respect to a mortgage, that
the mortgage becomes 90 or more days delinquent within
24 months of the origination of such mortgage.
* * * * * * *
(i) Indemnification by Mortgagees.--
(1) In general.--If the Secretary determines that the
mortgagee knew, or should have known, of a serious or
material violation of the requirements established by
the Secretary with respect to 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 such
that the mortgage loan should not have been approved
and endorsed by the mortgagee, 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, irrespective of
whether the violation caused the mortgage default.
(2) Fraud or misrepresentation.--If fraud or
misrepresentation was involved in connection with the
origination or underwriting and the Secretary
determines that the mortgagee knew or should have known
of the fraud or misrepresentation, the Secretary shall
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) Appeals process.--The Secretary shall, by
regulation, establish an appeals process for mortgagees
to appeal indemnification determinations made pursuant
to paragraph (1) or (2).
(4) Requirements and procedures.--The Secretary shall
issue regulations establishing appropriate requirements
and procedures governing the indemnification of the
Secretary by the mortgagee, including public reporting
on--
(A) the number of loans that--
(i) were not originated or
underwritten in accordance with the
requirements established by the
Secretary; and
(ii) involved fraud or
misrepresentation in connection with
the origination or underwriting; and
(B) the financial impact on the Mutual
Mortgage Insurance Fund when indemnification is
required.
(j) 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 or evidence of fraud or material
misrepresentation in connection with the origination of such
mortgages, to notify the Secretary of the action taken and the
reasons for such action not later than 15 days after taking
such action.
INSURANCE OF MORTGAGES
Sec. 203. (a) * * *
(b) To be eligible for insurance under this section a
mortgage shall comply with the following:
[(1) Have been made to, and be held by, a mortgagee
approved by the Secretary as responsible and able to
service the mortgage properly.]
(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.
* * * * * * *
(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 [may] shall establish and collect
annual premium payments in an amount [not exceeding 1.5
percent] not less than 0.55 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) and not exceeding
2.0 percent of such remaining insured principal balance
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 may be in an amount not exceeding [1.55
percent] 2.05 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).
* * * * * * *
INSURANCE OF HOME EQUITY CONVERSION MORTGAGES FOR ELDERLY HOMEOWNERS
Sec. 255. (a) * * *
* * * * * * *
(d) Eligibility Requirements.--To be eligible for insurance
under this section, a mortgage shall--
[(1) have been originated by a mortgagee approved by
the Secretary;]
(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;
* * * * * * *
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) * * *
(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. 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.
* * * * * * *
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 number of claims paid to
each servicing mortgagee during each calendar
quarter occurring during the applicable
collection period.
* * * * * * *
----------
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.
* * * * * * *
(h) There shall be in the Department a Chief Risk Officer for
the Government National Mortgage Association, who shall--
(1) be designated by the Secretary;
(2) be responsible to the President of the
Association for all matters related to evaluating,
managing, and mitigating risk to the programs of the
Association;
(3) be in the competitive service or the senior
executive service;
(4) be a career appointee;
(5) be designated from among individuals who possess
demonstrated ability in general management of, and
knowledge of and extensive practical experience in risk
evaluation practices in large governmental or business
entities;
(6) shall not be required to obtain the prior
approval, comment, or review of any officer or agency
of the United States before submitting to the Congress,
or any committee or subcommittee thereof, any reports,
recommendations, testimony, or comments if such
submission include a statement indicating that the
views expressed therein are those of the Chief Risk
Officer of the Association and do not necessarily
represent the views of the Secretary.
* * * * * * *
DISSENTING VIEWS
FHA helps to ensure credit availability to underserved
borrowers and the broader market when private sector lending
recedes, as occurred particularly during the height of the
housing crisis. While FHA contributes to the stabilization of
the market, it must balance this role with the need to protect
and preserve the Mutual Mortgage Insurance Fund (MMI Fund),
which has experienced significant stress as a result of the
recession, unemployment, and a failure on the part of many
lenders to appropriately follow FHA servicing and origination
guidelines.
Since 2009, FHA has taken a number of critical steps,
including tightening underwriting requirements, increasing
premiums, and strengthening lender accountability, to alter the
trajectory of the MMI Fund and better position FHA for the
future. The books of business insured in the few years before
2009 have largely driven the high number of claims to the MMI
Fund. Recent systematic tightening of risk controls, increased
premiums to stabilize near-term finances, and expanded usage of
loss mitigation workout assistance to avoid unnecessary claims,
have led to the highest quality of loans FHA has seen in its
history. Many of these changes are due in large part to
Congressional leadership and support for providing greater
flexibility to FHA in setting premiums and protecting FHA from
the impacts of unscrupulous or non-compliant lenders. With
respect to FHA premium increases to strengthen the Fund, FHA
recently announced a series of additional premium changes,
including a 75 bps increase in upfront premiums, which will
increase receipts to FHA by $1 billion in fiscal years 2012 and
2013. In addition, the Administration's FY 2013 Budget
submission includes the implementation of a 10 bps increase to
annual mortgage insurance premiums for all FHA-insured forward
mortgages, as mandated by Congress in the Temporary Payroll Tax
Cut Continuation Act of 2011 (P.L. 112-78) enacted in December,
as well as an additional 25 bps annual premium increase on
``jumbo'' loans, making the total increase for these larger
loans 35 bps.
Moreover, it is important that FHA's currently expanded
role in the nation's housing finance system be temporary, and
that it should return to its traditional role in the market in
accordance with the recovery of private lending. However,
although the government footprint in the nation's mortgage
markets must shrink, it is important not to impose dramatic
changes in the availability of credit that would negatively
impact FHA's ability to maintain its critical and long
established mission could pose significant harm to the progress
that is being made in recovery of the housing market and
broader economy.
H.R. 4264 contains several key provisions, sought for
several years by HUD and contained in legislation passed by a
previous Congress, which will enhance FHA's ability to protect
and stabilize the MMI Fund. These provisions include: Section
3, which, under certain circumstances, permits HUD to seek
indemnification from a mortgagee that participates in FHA's
Direct Endorsement program; Section 7, which expands HUD's
authority to terminate the approval of a mortgagee to originate
or underwrite loans for FHA insurance in a particular area, or
on a nationwide basis; and Section 8, which allows mortgage
originators not explicitly approved by FHA, but which are
sponsored by FHA-approved mortgagees, to close loans in their
own names. These provisions represent an important set of tools
which will allow FHA to protect the MMI Fund while ensuring
broad availability of mortgage credit for qualified borrowers.
They were also key components of H.R. 5072, FHA legislation
which passed the House with an overwhelming bipartisan majority
in 2010.
However, there are also some primarily technical provisions
in the bill and detailed below that must be addressed before
the bill can move forward. As discussed during the committee
markup, resolution of the following issues will continue in the
coming weeks with the goal of developing a bill that can
receive strong bipartisan support. These issues involve
maintaining critically important oversight and accountability
measures and at the same time ensuring that FHA is not
subjected to excessive reporting requirements or to an
independent review using accounting standards that are not
applicable to any other federal credit agency.
REQUIREMENT FOR MONTHLY REPORT THAT INCLUDES CAPITAL RESERVE RATIO
Because of the complexity of the calculation and the
availability of data, the ratio cannot realistically be
produced on a monthly basis. Even if it could be calculated, it
would not be meaningful in terms of understanding longer term
economic developments. There is also the concern that given the
language in the bill that currently calls for semiannual
actuarial studies, along with the existing quarterly reports
and other information already provided by FHA to Congress,
requiring a more frequent calculation of the ratio is
unnecessary and costly. We believe that a better approach to
obtaining additional real time information is to require HUD to
expand upon information that is already available on a more
frequent basis, and to require that the agency provide such
information to Congress.
REQUIREMENT FOR USE OF GENERALLY ACCEPTED ACCOUNTING PRINCIPLES THAT
APPLY TO THE PRIVATE SECTOR
We support an accurate accounting of FHA's financial
situation. However, we note that there are significant
differences between fair value accounting used by the private
sector and the approach to accounting used for federal
programs, like FHA, which are not subject to private sector
costs of capital. As such, we are uncertain that a wholesale
adoption of private sector accounting principles is appropriate
in view of FHA's governmental structure.
EARLY PERIOD DELINQUENCY DEFINITION
The bill calls for the review of early period delinquencies
on FHA-insured loans, and requires FHA to pursue
indemnification if violations of FHA guidelines are found.
Early period delinquency is defined in the bill as a loan that
becomes 90 days delinquent within 24 months of origination. The
industry standard for early period delinquencies is 6 months,
which is also FHA's standard. The 6 month timeframe is most
useful for identifying loans for which the delinquency is
likely attributable to failures to adhere to FHA underwriting
standards. HUD reports that it becomes more difficult to
isolate instances of non-compliance using the 24 month
definition, as the possible causes of delinquency increase
significantly over such a period to include life events, such
as unemployment, divorce, or unforeseen medical expenses.
Barney Frank.
Wm. Lacy Clay.
Melvin L. Watt.
Luis V. Gutierrez.
Andre Carson.
Gwen Moore.
Maxine Waters.
Michael E. Capuano.
Ruben Hinojosa.
Carolyn B. Maloney.
Gregory W. Meeks.
Gary L. Ackerman.
Brad Miller.