article: SECTION 1. SHORT TITLE. This Act may be cited as the ``FHA Improvement Act of 1994''. SEC. 2. CONGRESSIONAL FINDINGS. The Congress finds that-- (1) the single family housing mortgage insurance program of the Department of Housing and Urban Development is a significant factor in promoting first-time and affordable homeownership in the United States; (2) use of mortgage financing under the program has decreased in recent years, due in part to increasing complexity of mortgage origination and servicing under the program; (3) simplifying and streamlining the loan criteria and loan approval process under the program would have a positive effect on use of the program without increasing risk to the Mutual Mortgage Insurance Fund; and (4) flexible lending products can be developed without increasing risk to the Mutual Mortgage Insurance Fund. SEC. 3. LOAN FLOOR. Subparagraph (A) of the first sentence of section 203(b)(2) of the National Housing Act (12 U.S.C. 1709(b)(2)(A)) is amended by striking the matter following clause (ii) and inserting the following: ``except that the applicable dollar amount limitation in effect under this subparagraph (A) for any area may not be less than the greater of-- ``(I) the dollar amount limitation in effect under this section for the area on the date of enactment of the FHA Improvement Act of 1994; or ``(II) the applicable average area purchase price determined under section 143(e)(2) of the Internal Revenue Code of 1986, as adjusted by the Secretary to reflect a single amount using purchase prices for residences that have been previously occupied, and for residences that have not been so occupied, which amount shall be adjusted by the Secretary annually on the basis of the Constant Quality Housing Price Index;''. SEC. 4. CALCULATION OF DOWNPAYMENT. Section 203(b)(2) of the National Housing Act (12 U.S.C. 1709(b)(2)) is amended-- (1) by striking subparagraph (B) and inserting the following new subparagraph: ``(B) except as otherwise provided in this paragraph (2), not in excess of-- ``(i) 98.75 percent of the appraised value of the property, in the case of a mortgage with an appraised value equal to or less than $50,000, or ``(ii) 97.5 percent of the appraised value of the property, in the case of a mortgage with an appraised value in excess of $50,000, plus the amount of the mortgage insurance premium paid at the time the mortgage is insured.''; (2) by striking the 2d sentence of the matter following subparagraph (B); and (3) in penultimate undesignated paragraph-- (A) in the 2d sentence, by striking ``the preceding sentence'' and inserting ``this subsection''; and (B) by striking the first sentence. SEC. 5. ISSUANCE OF INSURANCE BY MORTGAGEES. Section 215 of the National Housing Act (12 U.S.C. 1715f) is amended-- (1) by inserting ``(a) Mortgages Without Insured Permanent Financing.--'' after ``Sec. 215''; and (2) by adding at the end the following new subsection: ``(b) Issuance of Insurance Certificates by Mortgagee.--Not later than the expiration of the 180-day period beginning on the date of the enactment of this Act, the Secretary shall implement a system for insuring mortgages under this title involving properties upon which are located 1- to 4-family dwelling units that provides that any mortgagee that is authorized by the Secretary to process mortgages as direct endorsement mortgages may endorse a mortgage for insurance, execute a firm commitment for insurance binding upon the Secretary, and issue a certificate of mortgage insurance under this title, without review and approval by the Secretary of the specific mortgage.''. SEC. 6. ELIMINATION OF RESTRICTIONS REGARDING NEW CONSTRUCTION. (a) In General.--Section 203(b)(2) of the National Housing Act (12 U.S.C. 1709(b)(2)) is amended, in the matter following subparagraph (B) (as amended by section 3 of this Act)-- (1) in the 1st undesignated paragraph, by striking ``Notwithstanding any other provision of this section,'' and all that follows through ``beginning of construction.''; and (2) by striking the 2d undesignated paragraph (relating to mortgage insurance amounts for residences having solar energy systems) (b) Repeal of Authority to Expend Amounts From Insurance Fund to Correct Substantial Defects.--Section 518 of the National Housing Act (12 U.S.C. 1735b) is hereby repealed. SEC. 7. AUTHORITY TO USE AMOUNTS BORROWED FROM FAMILY MEMBERS FOR DOWNPAYMENTS. (a) In General.--Section 203(b)(9) of the National Housing Act (12 U.S.C. 1709(b)(9)) is amended by inserting before the period at the end the following: ``: Provided further, That for purposes of this paragraph, the Secretary shall consider as cash or its equivalent any amounts borrowed from a family member (as such term is defined in section 201), subject only to the requirements that, in any case in which the repayment of such borrowed amounts is secured by a lien against the property, such lien shall be subordinate to the mortgage and the sum of the principal obligation of the mortgage and the obligation secured by such lien may not exceed 100 percent of the appraised value of the property plus any initial service charges, appraisal, inspection, and other fees in connection with the mortgage''. (b) Definition of Family Member.--Section 201 of the National Housing Act (12 U.S.C. 1707) is amended by adding at the end the following new subsections: ``(e) The term `family member' means, with respect to a mortgagor under such section, a child, parent, or grandparent of the mortgagor (or the mortgagor's spouse). In determining whether any of the relationships referred to in the preceding sentence exist, a legally adopted son or daughter of an individual (and a child who is a member of an individual's household, if placed with such individual by an authorized placement agency for legal adoption by such individual), and a foster child of an individual, shall be treated as a child of such individual by blood. ``(f) The term `child' means, with respect to a mortgagor under such section, a son, stepson, daughter, or stepdaughter of such mortgagor.''. SEC. 8. APPROVAL OF CONDOMINIUM PROJECTS. Section 234 of the National Housing Act (12 U.S.C. 1715y) is amended by striking subsection (k) and inserting the following new subsection: ``(k) Approval of Projects.-- ``(1) In general.--A mortgage covering a multifamily project or a condominium unit in a multifamily project shall be eligible for mortgage insurance under this section notwithstanding any other provision of this section relating to requirements for multifamily projects if the project has been approved by a government-sponsored housing enterprise and-- ``(A) in the case of a mortgage covering any condominium unit in the project, the mortgage otherwise complies with the requirements under this section regarding eligibility of mortgages for mortgage insurance provided under subsection (c); and ``(B) in the case of a blanket mortgage covering the multifamily project, the mortgage otherwise complies with the requirements under this section regarding eligibility of mortgages for mortgage insurance provided under subsection (d). ``(2) Definitions.--For purposes of this subsection, the following definitions shall apply: ``(A) The term `approved by a government-sponsored housing enterprise' means, with respect to a multifamily housing project having a condominium ownership structure, that a government-sponsored housing enterprise has determined that any mortgage covering the project or any condominium property in the project may be purchased by the enterprise if such mortgage is otherwise determined by the enterprise to meet the standards and requirements of the enterprise relating to mortgages. ``(B) The term `condominium unit' means, with respect to a multifamily property, a 1-family dwelling unit in the project and an undivided interest in the common areas and facilities that serve the project. ``(C) The term `government-sponsored housing enterprise' means-- ``(i) the Federal National Mortgage Association; and ``(ii) the Federal Home Loan Mortgage Corporation.''. SEC. 9. INSURANCE OF 2-STEP SINGLE FAMILY MORTGAGES. Title II of the National Housing Act (12 U.S.C. 1701 et seq.) is amended by adding at the end the following new section: ``2-step single family mortgages ``Sec. 256. (a) Authority.--After making the finding required under subsection (d), the Secretary may insure under any provision of this title a mortgage involving property upon which there is located a dwelling designed principally for occupancy by 1 to 4 families, where the mortgage provides that the effective rate of interest charged is-- ``(1) fixed for the duration of a specified period that consists of not less than the first 5 years of the mortgage term; ``(2) adjusted by the mortgagee upon the expiration of the specified period referred to in paragraph (1) for the mortgage; and ``(3) for the term of the mortgage remaining after such adjustment-- ``(A) fixed at the adjusted rate established pursuant to paragraph (2); or ``(B) periodically adjusted by the mortgagee. ``(b) Redetermination of Rate.--For each mortgage insured pursuant to this section, the adjustment of the effective rate of interest pursuant to subsection (a)(2) may be accomplished through adjustments in the monthly payment amount, the outstanding principal balance, or the mortgage term, or a combination of such factors, except that in no case may any extension of a mortgage term result in a total term in excess of 40 years. The adjustment in the effective rate of interest shall correspond to a specified national interest rate index that is approved in regulations issued by the Secretary and information on which is readily accessible to the mortgagors from generally available published sources. ``(c) Limitations on Second-Step Periodic Rates.--For each mortgage insured pursuant to this section for which the effective rate of interest charged pursuant to subsection (a)(3) is periodically adjusted under subparagraph (B) of such subsection, such adjustments in the interest rate-- ``(1) may be accomplished through adjustments in the monthly payment amount, the outstanding principal balance, or the mortgage term, or a combination of such factors, except that in no case may any extension of a mortgage term result in a total term in excess of 40 years; ``(2) shall correspond to a specified national interest rate index that is approved in regulations issued the Secretary and information on which is readily accessible to the mortgagors from generally available published sources; ``(3) shall be made on an annual basis; ``(4) shall be limited, with respect to any single interest rate increase, to no more than 1 percent on the outstanding loan balance; and ``(5) be limited to a maximum increase of 5 percentage points above the initial contract interest rate over the term of the mortgage. ``(d) Conditions on Insuring Authority.--The Secretary may insure mortgages pursuant to this section only after determining that the risk posed by such insurance to the financial safety and soundness of the insurance fund of which the mortgage insurance is an obligation does not exceed such risk posed by insurance of mortgages of equivalent terms having fixed interest rates over such terms. ``(e) Description of Features.--The Secretary shall issue regulations requiring that the mortgagee make available to the mortgagor, at the time of loan application, a written explanation of the features of the 2-step mortgage insured pursuant to this section. ``(f) Limitation of Total Number of Mortgages Insured.--The aggregate number of mortgages and loans insured pursuant to this section in any fiscal year may not exceed 10 percent of the aggregate number of mortgages and loans insured by the Secretary under this title during the preceding fiscal year.''. SEC. 10. STUDY REGARDING MORTGAGE INSURANCE PREMIUMS AND MORTGAGE AMOUNT LIMITATIONS. The Secretary of Housing and Urban Development shall conduct a study to determine-- (1) various methods of decreasing the amounts of the up- front and annual premiums charged for mortgage insurance under the single family home mortgage insurance program under title II of the National Housing Act; and (2) the effects of such various methods on the financial safety and soundness of the Mutual Mortgage Insurance Fund. Not later than the expiration of the 18-month period beginning on the date of the enactment of this Act, the Secretary shall submit a report to the Congress containing the findings of the study under this section and any recommendations of the Secretary resulting from such findings.
summary: FHA Improvement Act of 1994 - Amends the National Housing Act to revise the single family mortgage insurance program. Directs the Secretary of Housing and Urban Development to study mortgage insurance premiums and mortgage amount limitations.