House Report 112-25 - FHA REFINANCE PROGRAM TERMINATION ACT

[House Report 112-25]
[From the U.S. Government Publishing Office]

112th Congress Report
HOUSE OF REPRESENTATIVES
1st Session 112-25

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

FHA REFINANCE PROGRAM TERMINATION ACT

_______

March 7, 2011.--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. 830]

[Including cost estimate of the Congressional Budget Office]

The Committee on Financial Services, to whom was referred
the bill (H.R. 830) to rescind the unobligated funding for the
FHA Refinance Program and to terminate the program, having
considered the same, report favorably thereon with an amendment
and recommend that the bill as amended do pass.
The amendment is as follows:
Strike all after the enacting clause and insert the
following:

SECTION 1. SHORT TITLE.

This Act may be cited as the ``FHA Refinance Program Termination
Act''.

SEC. 2. RESCISSION OF FUNDING FOR FHA REFINANCE PROGRAM.

Effective on the date of the enactment of this Act, there are
rescinded and permanently canceled all unexpended balances remaining
available as of such date of enactment of the amounts made available
under title I of the Emergency Economic Stabilization Act (Public Law
110-343; 12 U.S.C. 5211 et seq.) that have been allocated for use under
the FHA Refinance Program (pursuant to Mortgagee Letter 2010-23 of the
Secretary of Housing and Urban Development) of the Making Home
Affordable initiative of the Secretary of the Treasury.

SEC. 3. TERMINATION OF FHA REFINANCE PROGRAM.

(a) Termination of Mortgagee Letter.--The Mortgagee Letter referred
to in section 2 shall be void and have no effect and the Secretary of
Housing and Urban Development may not issue any regulation, order,
notice, or mortgagee letter based on or substantially similar to such
Mortgagee Letter.
(b) Treatment of Remaining Funds.--Notwithstanding subsection (a) of
this section, any amounts made available for use under the Program
referred to in section 2 of this Act and expended before the date of
the enactment of this Act shall continue to be governed by the
Mortgagee Letter specified in subsection (a) of this section, and any
other provisions of law, regulations, orders, and notices, applicable
to such amounts, as in effect immediately before such date of
enactment.
(c) Termination.--After the enactment of this Act, the Secretary of
Housing and Urban Development may not newly insure any mortgage under
the FHA Refinance Program referred to in section 2 of this Act except
pursuant to a commitment to insure made before such enactment, and upon
the completion of all activities with respect to such commitments under
the provisions of law, regulations, orders, notices, and mortgagee
letters referred to in subsection (b) of this section, the Secretary of
Housing and Urban Development shall terminate the FHA Refinance Program
referred to in section 2.
(d) Study of Use of Program by Members of the Armed Forces, Veterans,
and Gold Star Recipients.--
(1) Study.--The Secretary of Housing and Urban Development
shall conduct a study to determine the extent of usage of the
FHA Refinance Program referred to in section 2 by, and the
impact of such program on, covered homeowners.
(2) Report.--Not later than the expiration of the 90-day
period beginning on the date of the enactment of this Act, the
Secretary shall submit to the Congress a report setting forth
the results of the study under paragraph (1) and identifying
best practices, with respect to covered homeowners, that could
be applied to the FHA Refinance Program.
(3) Covered homeowner.--For purposes of this subsection, the
term ``covered homeowner'' means a homeowner who is--
(A) a member of the Armed Forces of the United States
on active duty or the spouse or parent of such a
member;
(B) a veteran, as such term is defined in section 101
of title 38, United States Code; or
(C) eligible to receive a Gold Star lapel pin under
section 1126 of title 10, United States Code, as a
widow, parent, or next of kin of a member of the Armed
Forces person who died in a manner described in
subsection (a) of such section.

PURPOSE AND SUMMARY

H.R. 830, The FHA Refinance Program Termination Act, would
rescind all unobligated balances made available for the program
by Title I of the Emergency Economic Stabilization Act (P.L.
110-343) that have been allocated for use under the FHA
Refinance Program (pursuant to Mortgagee Letter 2010-23 of the
Secretary of Housing and Urban Development). The bill would
also terminate the program and void the Mortgagee Letter
pursuant to which it was implemented, with concessions made for
current participants in the program.

BACKGROUND AND NEED FOR LEGISLATION

On March 26, 2010, the Obama Administration announced the
FHA Refinance Program, which provides refinancing options
through the Federal Housing Administration's mortgage insurance
program to homeowners who are ``underwater'' on their
mortgages, owing more in mortgage principal than the property's
current value. The program is designed to be funded with $8.12
billion in Troubled Asset Relief Program (TARP) funds that had
originally been set aside for the Home Affordable Modification
Program (HAMP). FHA Mortgagee Letter (2010-23) was the
governing document for the program, and provided guidance to
lenders on the FHA Refinance Program. The program was
implemented on September 7, 2010, and is scheduled to expire on
December 31, 2012.
Of the $8.12 billion set aside by the Administration for
this program, only $50 million has been disbursed thus far. The
funds apportioned for this program from TARP are to act as a
buffer against future losses from loans refinanced through the
program for the FHA Reserve Fund. In the event the funds set
aside to cover potential losses are exhausted, additional
defaults associated with the program will be borne by the FHA
directly. Testimony by Administration officials before the
Subcommittee on Insurance, Housing and Community Opportunity on
March 3, 2011, stated that ``there is reasonable concern that
there may be a performance differential--these [FHA Refinance]
loans may perform worse than refinanced loans that were not
previously underwater.'' The most recent annual independent
audit of FHA found that the Mutual Mortgage Insurance Fund
(MMIF) was well below its statutory capital ratio requirement
of 2 percent of FHA, at a ratio of .50 percent. Therefore, the
prospect of the FHA Refinance Program further weakening the FHA
Mutual Mortgage Insurance Fund exposes the taxpayer to
additional risks.
The program has experienced little demand since its
inception. As of its most recent report (Jan 2011), FHA
indicates only 182 borrowers have applied for the program, and
just 40 have been refinanced to date. The FHA Commissioner
testified to this point on March 3, 2011, saying, ``I do not
expect large numbers. And I think that's an absolute concern.''
H.R. 830 would terminate the program, while providing that
those mortgages where an insurance commitment was made prior to
the enactment of this legislation will be governed by the law,
FHA Mortgagee letter, regulations, orders and notices.

HEARING

The Subcommittee on Insurance, Housing, and Community
Opportunity held a hearing on March 2, 2011 entitled
``Legislative Proposals to End Taxpayer Funding for Ineffective
Foreclosure Mitigation Programs.'' The following witnesses
testified:
The Honorable Neil M. Barofsky, Special
Inspector General for the Troubled Asset Relief Program
The Honorable Mercedes M. Marquez, Assistant
Secretary, Community Planning and Development
The Honorable David Stevens, Assistant
Secretary for Housing/FHA Commissioner
Matthew J. Scire, Director, Financial
Markets and Community Investment, U.S. Government
Accountability Office
Katie Jones, Analyst in Housing Policy,
Congressional Research Service, Library of Congress

COMMITTEE CONSIDERATION

The Committee on Financial Services met in open session on
March 3, 2011 and ordered H.R. 830, the FHA Refinance Program
Termination Act, as amended, favorably reported to the House by
a record vote of 33 yeas and 22 nays (Record vote no. FC-12).

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 a
record vote of 33 yeas and 22 nays (Record vote no. FC-12). The
names of Members voting for and against follow:

RECORD VOTE NO. FC-12
----------------------------------------------------------------------------------------------------------------
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.... ........ ........ .........
Mr. Lucas...................... X ........ ......... Ms. Velazquez.... ........ X .........
Mr. Paul....................... X ........ ......... Mr. Watt......... ........ X .........
Mr. Manzullo................... X ........ ......... Mr. Ackerman..... ........ X .........
Mr. Jones...................... X ........ ......... Mr. Sherman...... ........ X .........
Mrs. Biggert................... X ........ ......... Mr. Meeks........ ........ ........ .........
Mr. Gary G. Miller (CA)........ ........ ........ ......... Mr. Capuano...... ........ X .........
Mrs. Capito.................... X ........ ......... Mr. Hinojosa..... ........ ........ .........
Mr. Garrett.................... X ........ ......... Mr. Clay......... ........ X .........
Mr. Neugebauer................. X ........ ......... Mrs. McCarthy ........ X .........
(NY).
Mr. McHenry.................... X ........ ......... Mr. Baca......... ........ ........ .........
Mr. Campbell................... X ........ ......... Mr. Lynch........ ........ X .........
Mrs. Bachmann.................. X ........ ......... Mr. Miller (NC).. ........ X .........
Mr. Marchant................... X ........ ......... Mr. David Scott ........ X .........
(GA).
Mr. McCotter................... X ........ ......... Mr. Al Green (TX) ........ X .........
Mr. McCarthy (CA).............. X ........ ......... Mr. Cleaver...... ........ X .........
Mr. Pearce..................... X ........ ......... Ms. Moore........ ........ X .........
Mr. Posey...................... X ........ ......... Mr. Ellison...... ........ X .........
Mr. Fitzpatrick................ X ........ ......... Mr. Perlmutter... ........ X .........
Mr. Westmoreland............... X ........ ......... Mr. Donnelly..... ........ ........ .........
Mr. Luetkemeyer................ X ........ ......... Mr. Carson....... ........ X .........
Mr. Huizenga................... X ........ ......... Mr. Himes........ ........ X .........
Mr. Duffy...................... X ........ ......... Mr. Peters....... ........ X .........
Ms. Hayworth................... X ........ ......... Mr. Carney....... ........ X .........
Mr. Renacci.................... X ........ .........
Mr. Hurt....................... X ........ .........
Mr. Dold....................... X ........ .........
Mr. Schweikert................. X ........ .........
Mr. Grimm...................... X ........ .........
Mr. Canseco.................... X ........ .........
Mr. Stivers.................... X ........ .........
----------------------------------------------------------------------------------------------------------------

During consideration of H.R. 830, the following amendments
were considered:
1. An Amendment offered by Ms. Maloney, no. 1, allowing the
FHA Refinance Program to insure 500,000 loans after the date of
enactment, was not agreed to by a record vote of 22 yeas and 33
nays (Record vote no. FC-9).

RECORD VOTE NO. FC-9
----------------------------------------------------------------------------------------------------------------
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.... ........ ........ .........
Mr. Lucas...................... ........ X ......... Ms. Velazquez.... X ........ .........
Mr. Paul....................... ........ X ......... Mr. Watt......... X ........ .........
Mr. Manzullo................... ........ X ......... Mr. Ackerman..... X ........ .........
Mr. Jones...................... ........ X ......... Mr. Sherman...... X ........ .........
Mrs. Biggert................... ........ X ......... Mr. Meeks........ ........ ........ .........
Mr. Gary G. Miller (CA)........ ........ ........ ......... Mr. Capuano...... X ........ .........
Mrs. Capito.................... ........ X ......... Mr. Hinojosa..... ........ ........ .........
Mr. Garrett.................... ........ X ......... Mr. Clay......... X ........ .........
Mr. Neugebauer................. ........ X ......... Mrs. McCarthy X ........ .........
(NY).
Mr. McHenry.................... ........ X ......... Mr. Baca......... ........ ........ .........
Mr. Campbell................... ........ X ......... Mr. Lynch........ X ........ .........
Mrs. Bachmann.................. ........ X ......... Mr. Miller (NC).. X ........ .........
Mr. Marchant................... ........ X ......... Mr. David Scott X ........ .........
(GA).
Mr. McCotter................... ........ X ......... Mr. Al Green (TX) X ........ .........
Mr. McCarthy (CA).............. ........ X ......... Mr. Cleaver...... X ........ .........
Mr. Pearce..................... ........ X ......... Ms. Moore........ X ........ .........
Mr. Posey...................... ........ X ......... Mr. Ellison...... X ........ .........
Mr. Fitzpatrick................ ........ X ......... Mr. Perlmutter... X ........ .........
Mr. Westmoreland............... ........ X ......... Mr. Donnelly..... ........ ........ .........
Mr. Luetkemeyer................ ........ X ......... Mr. Carson....... X ........ .........
Mr. Huizenga................... ........ X ......... Mr. Himes........ X
Mr. Duffy...................... ........ X ......... Mr. Peters....... X ........ .........
Ms. Hayworth................... ........ X ......... Mr. Carney....... X ........ .........
Mr. Renacci.................... ........ X .........
Mr. Hurt....................... ........ X .........
Mr. Dold....................... ........ X .........
Mr. Schweikert................. ........ X .........
Mr. Grimm...................... ........ X .........
Mr. Canseco.................... ........ X .........
Mr. Stivers.................... ........ X .........
----------------------------------------------------------------------------------------------------------------

2. An amendment offered by Mr. Lynch, no. 2, striking the
mortgagee letter termination part of the bill, was not agreed
to by a record vote of 22 yeas and 33 nays (Record vote no. FC-
10).

RECORD VOTE NO. FC-10
----------------------------------------------------------------------------------------------------------------
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.... ........ ........ .........
Mr. Lucas...................... ........ X ......... Ms. Velazquez.... X ........ .........
Mr. Paul....................... ........ X ......... Mr. Watt......... X ........ .........
Mr. Manzullo................... ........ X ......... Mr. Ackerman..... X ........ .........
Mr. Jones...................... ........ X ......... Mr. Sherman...... X ........ .........
Mrs. Biggert................... ........ X ......... Mr. Meeks........ ........ ........ .........
Mr. Gary G. Miller (CA)........ ........ ........ ......... Mr. Capuano...... X ........ .........
Mrs. Capito.................... ........ X ......... Mr. Hinojosa..... ........ ........ .........
Mr. Garrett.................... ........ X ......... Mr. Clay......... X ........ .........
Mr. Neugebauer................. ........ X ......... Mrs. McCarthy X ........ .........
(NY).
Mr. McHenry.................... ........ X ......... Mr. Baca......... ........ ........ .........
Mr. Campbell................... ........ X ......... Mr. Lynch........ X ........ .........
Mrs. Bachmann.................. ........ X ......... Mr. Miller (NC).. X ........ .........
Mr. Marchant................... ........ X ......... Mr. David Scott X ........ .........
(GA).
Mr. McCotter................... ........ X ......... Mr. Al Green (TX) X ........ .........
Mr. McCarthy (CA).............. ........ X ......... Mr. Cleaver...... X ........ .........
Mr. Pearce..................... ........ X ......... Ms. Moore........ X ........ .........
Mr. Posey...................... ........ X ......... Mr. Ellison...... X ........ .........
Mr. Fitzpatrick................ ........ X ......... Mr. Perlmutter... X ........ .........
Mr. Westmoreland............... ........ X ......... Mr. Donnelly..... ........ ........ .........
Mr. Luetkemeyer................ ........ X ......... Mr. Carson....... X ........ .........
Mr. Huizenga................... ........ X ......... Mr. Himes........ X ........ .........
Mr. Duffy...................... ........ X ......... Mr. Peters....... X ........ .........
Ms. Hayworth................... ........ X ......... Mr. Carney....... X ........ .........
Mr. Renacci.................... ........ X .........
Mr. Hurt....................... ........ X .........
Mr. Dold....................... ........ X .........
Mr. Schweikert................. ........ X .........
Mr. Grimm...................... ........ X .........
Mr. Canseco.................... ........ X .........
Mr. Stivers.................... ........ X .........
----------------------------------------------------------------------------------------------------------------

3. An amendment offered by Mr. Grimm, no. 3a, requiring HUD
to study the usage of the program for members of the armed
forces, veterans, and gold star recipients, to the amendment
offered by Mr. Green, no. 3, allowing for the continuation of
the program to members of the armed forces, veterans, and gold
star recipients, was agreed to by a record vote of 33 yeas and
22 nays (Record vote no. FC-11).

RECORD VOTE NO. FC-11
----------------------------------------------------------------------------------------------------------------
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.... ........ ........ .........
Mr. Lucas...................... X ........ ......... Ms. Velazquez.... ........ X .........
Mr. Paul....................... X ........ ......... Mr. Watt......... ........ X .........
Mr. Manzullo................... X ........ ......... Mr. Ackerman..... ........ X .........
Mr. Jones...................... X ........ ......... Mr. Sherman...... ........ X .........
Mrs. Biggert................... X ........ ......... Mr. Meeks........ ........ ........ .........
Mr. Gary G. Miller (CA)........ ........ ........ ......... Mr. Capuano...... ........ X .........
Mrs. Capito.................... X ........ ......... Mr. Hinojosa..... ........ ........ .........
Mr. Garrett.................... X ........ ......... Mr. Clay......... ........ X .........
Mr. Neugebauer................. X ........ ......... Mrs. McCarthy ........ X .........
(NY).
Mr. McHenry.................... X ........ ......... Mr. Baca......... ........ ........ .........
Mr. Campbell................... X ........ ......... Mr. Lynch........ ........ X .........
Mrs. Bachmann.................. X ........ ......... Mr. Miller (NC).. ........ X .........
Mr. Marchant................... X ........ ......... Mr. David Scott ........ X .........
(GA).
Mr. McCotter................... X ........ ......... Mr. Al Green (TX) ........ X .........
Mr. McCarthy (CA).............. X ........ ......... Mr. Cleaver...... ........ X .........
Mr. Pearce..................... X ........ ......... Ms. Moore........ ........ X .........
Mr. Posey...................... X ........ ......... Mr. Ellison...... ........ X .........
Mr. Fitzpatrick................ X ........ ......... Mr. Perlmutter... ........ X .........
Mr. Westmoreland............... X ........ ......... Mr. Donnelly..... ........ ........ .........
Mr. Luetkemeyer................ X ........ ......... Mr. Carson....... ........ X .........
Mr. Huizenga................... X ........ ......... Mr. Himes........ ........ X .........
Mr. Duffy...................... X ........ ......... Mr. Peters....... ........ X .........
Ms. Hayworth................... X ........ ......... Mr. Carney....... ........ X .........
Mr. Renacci.................... X ........ .........
Mr. Hurt....................... X ........ .........
Mr. Dold....................... X ........ .........
Mr. Schweikert................. X ........ .........
Mr. Grimm...................... X ........ .........
Mr. Canseco.................... X ........ .........
Mr. Stivers.................... X ........ .........
----------------------------------------------------------------------------------------------------------------

The following amendment was also considered by the
Committee:
An amendment offered by Mr. Green, no. 3, as amended by an
amendment offered by Mr. Grimm, no. 3a (Record vote no. FC-11),
requiring HUD to study the usage of the program for members of
the armed forces, veterans, and gold star recipients, was
agreed to by voice vote.

COMMITTEE OVERSIGHT FINDINGS

Pursuant to clause 3(c)(1) of rule XIII of the Rules of the
House of Representatives, the Committee has held a hearing 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 purposes of H.R. 830, the FHA Refinance Program
Termination Act, are to rescind all unobligated balances made
available for the FHA Refinance program pursuant to Title I of
the Emergency Economic Stabilization Act (P.L. 110-343) that
have been allocated for use under the Program (pursuant to
Mortgagee Letter 2010-23 of the Secretary of Housing and Urban
Development), to terminate the program, and to void the
Mortgagee Letter pursuant to which it was implemented, with
concessions made for current participants in the program.

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 ESTIMATES

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:

U.S. Congress,
Congressional Budget Office,
Washington, DC, March 7, 2011.
Hon. Spencer Bachus,
Chairman, Committee on Financial Services,
House of Representatives, Washington, DC.
Dear Mr. Chairman: The Congressional Budget Office has
prepared the enclosed cost estimate for H.R. 830, the FHA
Refinance Program Termination Act of 2011.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contact is Chad Chirico.
Sincerely,
Douglas W. Elmendorf.
Enclosure.

H.R. 830--FHA Refinance Program Termination Act of 2011

Summary: H.R. 830 would terminate the Federal Housing
Administration's (FHA's) program to refinance mortgages for
borrowers who owe more than the value of their home.
Additionally, the bill would rescind funds that remain
available for the program as of the date of enactment.
CBO estimates that enacting the legislation would decrease
federal budget deficits by $175 million over the 2011-2021
period. Pay-as-you-go procedures apply because the legislation
would affect direct spending.
The bill contains no intergovernmental or private-sector
mandates as defined in the Unfunded Mandates Reform Act (UMRA).
Estimated cost to the Federal Government: The estimated
budgetary impact of H.R. 830 is shown in the following table.
The costs of this legislation fall within budget function 600
(income security).

--------------------------------------------------------------------------------------------------------------------------------------------------------
By fiscal year, in millions of dollars--
-------------------------------------------------------------------------------------------------------
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2011-2016 2011-2021
--------------------------------------------------------------------------------------------------------------------------------------------------------
CHANGES IN DIRECT SPENDING
Estimated Budget Authority...................... -2 -103 -70 0 0 0 0 0 0 0 0 -175 -175
Estimated Outlays............................... -2 -103 -70 0 0 0 0 0 0 0 0 -175 -175
--------------------------------------------------------------------------------------------------------------------------------------------------------

Basis of estimate: The FHA program to refinance mortgages
for borrowers who owe more than the value of their house was
launched in September 2010 and is a joint effort between the
Department of the Treasury and the FHA. Using authority
provided by the Emergency Economic Stabilization Act of 2008,
the Treasury established an $8 billion letter of credit with
Citigroup to be used to provide loss protection on the new FHA
loans. The loss protection allows FHA to guarantee the new
mortgages without the need for additional appropriations for
the cost of the credit subsidy. The Treasury also has obligated
$2.7 billion for the FHA Second Lien Program which complements
the refinance program by encouraging the write-down of second-
lien loans. Homeowners can refinance into FHA mortgages through
December 31, 2012.
To be eligible for a mortgage under this program the
homeowners must be current on their existing mortgage, owe more
on their mortgage than the house is worth, and have an existing
loan that is not insured by FHA. Additionally, servicers of the
existing mortgage must agree to write off at least 10 percent
of the unpaid balance so that the new mortgage has a loan-to-
value ratio of no more than 97.75 percent.
As of January 31, 2011, about 40 loans have been refinanced
under the program. Based on data from the Department of Housing
and Urban Development, CBO estimates that the refinanced loans
cost the government an average of $13,000 on a present-value
basis. CBO estimates that enacting H.R. 830 would prevent the
refinancing of about 13,000 mortgages under the program. In
total, CBO estimates that enacting the bill would reduce direct
spending by $175 million over the 2011-2021 period. For this
estimate, CBO assumes that the legislation will be enacted by
June 2011.
Pay-as-you-go considerations: The Statutory Pay-As-You-Go
Act of 2010 establishes budget reporting and enforcement
procedures for legislation affecting direct spending or
revenues. The net changes in outlays that are subject to those
pay-as-you-go procedures are shown in the following table.
(Enacting H.R. 830 would have no impact on Federal revenues.)

CBO ESTIMATE OF PAY-AS-YOU-GO EFFECTS FOR H.R. 830, THE FHA REFINANCE PROGRAM TERMINATION ACT, AS ORDERED REPORTED BY THE HOUSE COMMITTEE ON FINANCIAL
SERVICES ON MARCH 3, 2011
--------------------------------------------------------------------------------------------------------------------------------------------------------
By fiscal year, in millions of dollars--
------------------------------------------------------------------------------------------------------
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2011-2016 2011-2021
--------------------------------------------------------------------------------------------------------------------------------------------------------
NET DECREASE (-) IN THE DEFICIT

Statutory Pay-As-You-Go Impact................... -2 -103 -70 0 0 0 0 0 0 0 0 -175 -175
--------------------------------------------------------------------------------------------------------------------------------------------------------

Intergovernmental and private-sector impact: The bill
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: Chad Chirico; Impact
on State, Local, and Tribal Governments: Lisa Ramirez-Branum;
Impact on the Private Sector: Paige Piper-Bach.
Estimate approved by: Peter H. Fontaine, 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. 830 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

This Act may be cited as the ``FHA Refinance Program
Termination Act.''

Section 2. Rescission of funding for FHA Refinance Program

Section Two would rescind and permanently cancel all
unexpended balances remaining available after the enactment of
the bill for the FHA Refinance Program, pursuant to Mortgagee
Letter 2010-23 of the Secretary of Housing and Urban
Development.

Section 3. Termination of FHA Refinance Program

Section Three terminates FHA's Mortgagee Letter 2010-23 and
prohibits the Department of Housing and Urban Development from
issuing any regulation, order, notice, or mortgagee letter that
is substantially similar to the mortgagee letter. Any remaining
amounts made available prior to the date of enactment of this
Act shall continue to be used as governed by FHA Mortgagee
Letter 2010-23. After the date of enactment of this Act, the
Secretary of Housing and Urban Development may not newly insure
any mortgage under the FHA Refinance Program unless a
commitment to insure was made before the Act's enactment. Once
all activities are completed pursuant to this Act, the
Secretary of Housing and Urban Development shall terminate the
FHA Refinance Program.
Further, this section directs the Secretary of Housing and
Urban Development to conduct a study to determine the extent of
usage of the FHA Refinance Program by ``covered homeowners.''
Covered homeowners are defined as individuals who are active
duty members of the U.S. armed forces and their spouses or
parents, veterans of the U.S. armed forces, and individuals
eligible to receive a Gold Star lapel button under 10 U.S.C.
1126 as the widow, parent, or next of kin of a fallen member of
the U.S. armed forces. The Secretary of Housing and Urban
Development is then required to submit a report to Congress
including the results of that study and identifying any best
practices that could be applied to the FHA Refinance Program
for covered homeowners within 90 days of enactment of this Act.

DISSENTING VIEWS

H.R. 830, the ``FHA Refinance Program Termination Act,'' is
one of four bills being advanced by the Majority as a
coordinated assault on federal programs designed to address the
nationwide housing and foreclosure crisis. This bill would
terminate an important FHA refinance program that can be used
in conjunction with lender writedowns of principal on
``underwater'' mortgage loans.
This program is one of a number of complementary federal
programs that address different problems posed by our current
housing programs. The other programs the Majority is shutting
down are the HAMP loan modification program, loans to
unemployed homeowners to bridge the gap so that homeowners can
resume payments when they find a job, and grants to local
communities for purchase and rehabilitation of foreclosed and
abandoned homes, to address blight and deterioration of
neighborhoods experiencing a high foreclosure rate. At the
hearing on these four bills, not a single witness--including
the GAO and SIGTARP, who were witnesses called by the
Majority--supported shutting down any of these four programs at
this time.
A major factor in the housing crisis was private sector
lenders originating loans to borrowers that could not afford
them, with such loans often combined with predatory loan
features, such as exploding mortgage rate reset terms. As the
housing crisis hit and homeowners started to default on loans,
these same private sector lenders announced that they would
address problems through proprietary loan modifications. In
practice, there is a general consensus that these initial
efforts were woefully inadequate to address the default and
foreclosure crisis, particularly since a majority of these
modifications actually increased the payments borrowers were
required to make. Therefore, in early 2009, the Obama
Administration started to roll out the first of a number of
initiatives, using general authority under the TARP
legislation, to facilitate loan modifications and refinancings
of borrowers in or at risk of default, and in danger of
foreclosure.
Now, two years later, as some of these initiatives are
showing real results and others are just beginning to take off,
the Majority wants to shut these efforts down. They claim that
these federal programs have not helped enough homeowners. But,
their answer to the criticism that not enough homeowners have
been helped by these programs . . . is to stop them from
helping anyone else in the future. Their answer is to eliminate
federal assistance that helps keep people in their homes and to
eliminate the nationwide loan modification standards that go
with them. Their answer is to turn over resolution of the
foreclosure crisis to the very entities that created the bad
loans in the first place and failed to achieve meaningful loan
modifications in the period before these government programs
were put in place. The result would lead inevitably to a
worsening of the foreclosure crisis, dampened home prices, and
economic instability.
This bill, which shuts down the FHA Short Refi program, is
a prime example of this misguided strategy. The program was
rolled out by the Obama Administration in October, 2010, and
expires at the end of 2012. It is designed to offer incentives
for holders of existing single family loans where the borrower
is ``underwater'' (i.e., the loan amount exceeds the current
property value) to reduce the outstanding principal balance of
the underwater portion of the loan, in conjunction with a FHA
refinancing of the remaining loan balance. Customary FHA
underwriting guidelines and standards apply to these loans--
including FHA loan to value (LTV) ratios, FHA mortgage
premiums, FHA debt to income ratios and loan documentation
standards, and a requirement that the home be owner occupied.
However, the critical feature of the program is that the
existing lender must write off at least 10% of the current
outstanding loan balance. Thus, the borrower benefits from both
a principal reduction and a lowered mortgage interest rate.
The program is designed to address concerns that other loan
modification and refinancing programs may address payment
affordability problems, but do not resolve underlying problems
that may be caused by the mortgage loan being underwater.
According to a December 13, 2010 release by CoreLogic, a
leading provider of mortgage data, 10.8 million, or 22.5
percent, of all residential properties with mortgages were in
negative equity at the end of the 3rd quarter, 2010. Mark
Fleming, CoreLogic's Chief Economist, noted that ``Negative
equity is a primary factor holding back the housing market and
the broader economy.''
Some research has shown that default and foreclosure levels
increase when loan to value (LTV) levels exceed 115% (that is,
when the loan balance exceeds 115% of the home's current
value). This is because homeowners who may be struggling to
making payments on their mortgage are less motivated to keep
making such payments if they are significantly underwater and
don't have an expectation that their home will appreciate any
time soon up to the loan amount. Underwater mortgages also lock
homeowners in their home, preventing them from selling the home
and being able to move without bringing substantial cash
resources to the closing table.
Proponents of shutting down the program argued during
markup that we have already spent $50 million for the program
and yet only completed a small number of loans. This cost claim
is inaccurate. No federal tax dollars have been spent to date.
Proponents of program shutdown have also claimed it has an
ultimate price tag of $8 billion. This claim is misleading at
best. It is true that a dollar amount cap of $8 billion in TARP
funds have allocated for a loan loss reserve for this program.
However, actual expenditure of tax dollars is dependent on
program use, with any unused funds be returning to the
taxpayer, pursuant to the terms of the original TARP act and
pursuant to a Democratic amendment to the Dodd-Frank bill which
prevents TARP funds for being used for new programs. Moreover,
the FHA program is responsible for customary and normal risk
exposure on these FHA short refinance loans (along with the
benefit of customary loan fees the FHA charges). TARP loan loss
reserve funds only cover losses in excess of customary FHA loan
losses. Moreover, unlike some other loan modification programs,
FHA restricts use of this program to only homeowners who are
current on the existing mortgage, increasing the likelihood
that the borrower will continue to make payments under the
refi.
Proponents of shutting down the program also argued during
the markup that the program was not a success because there
have been few loans to date. While it is true that use has been
limited so far, there are a number of reasons for this,
including the fact that it has only been operational for a few
months, that lender/servicers have had to update their systems
in order to be ready to process loans, and that participation
depends on their willingness to make meaningful principal
reductions on existing loans. In fact, just within the last
week, a number of major lenders, including Wells Fargo and Ally
Financial (formerly GMAC), have indicated that they plan to
start using the program. As existing mortgage holders seek a
long-term resolution of their portfolio of underwater
mortgages, this program may become an important component of a
strategy to put the homeowner into a permanently sustainable
mortgage.
In addition to shutting down the program precisely at the
moment when lenders are starting to indicate they plan on using
the program, the bill includes unnecessary language terminating
not just the FHA mortgagee letter for the program, but
prohibiting FHA from issuing any mortgagee letter
``substantially similar'' to this one. This unreasonably broad
prohibition could stop FHA from rolling out any other refinance
programs that might respond to the current housing crisis.
Proponents of shutting down the program can't have it both
ways, arguing two contradictory claims at the same time--that
the program will have a big price tag (with an underlying
assumption of significant usage) and that no one will use it.
In practice, if few loans are ultimately made, then shutting
down the program now would have no or very limited cost
savings. If, however as is more likely, the program gains
traction and is more widely used, there may be a modest cost,
but it would reflect a significant positive investment in
reducing foreclosures, rightsizing homeowners' payment
obligations and underwater loan status, and complementing other
federal programs which work to address our nation's housing
problems. Either way, shutting down the program at this time
makes no sense.
Gregory W. Meeks.
Emanuel Cleaver.
Gwen Moore.
Luis V. Gutierrez.
Ruben Hinojosa.
Nydia M. Velazquez.
Barney Frank.
Carolyn B. Maloney.
Keith Ellison.
Stephen F. Lynch.
Michael E. Capuano.
Maxine Waters.