article: SECTION 1. SHORT TITLE. This Act may be cited as the ``FHA Seller-Financed Downpayment Reform and Risk-Based Pricing Authorization Act of 2008''. SEC. 2. FHA SELLER-FINANCED DOWNPAYMENT PROGRAM. Paragraph (9) of section 203(b) of the National Housing Act (12 U.S.C. 1709(b)(9)) is amended-- (1) in subparagraph (C), by striking ``In no case shall the funds required by subparagraph (A)'' and inserting the following: ``Except in the case of a mortgage described in subparagraph (D), the funds required by subparagraph (A) shall not''; and (2) by adding at the end the following new subparagraphs: ``(D) Exceptions to prohibited sources.--A mortgage described in this subparagraph is any of the following mortgages: ``(i) A mortgage under which the mortgagor has a credit score equivalent to a FICO score of 680 or greater. ``(ii) A mortgage under which-- ``(I) the mortgagor has a credit score equivalent to a FICO score of at least 620 but less than 680; and ``(II) mortgage insurance premiums charged are established-- ``(aa) at levels necessary, but no higher than needed, to allow such class of loans to be insured without resulting in a need for an appropriation for a credit subsidy, which may exceed the maximum amount permitted under section 203(c)(2)(B); ``(bb) in the case of the single premium collected at the time of insurance, in an amount not exceeding 3.0 percent of the amount of the original principal obligation of the mortgage; and ``(cc) in the case of the annual premium for a mortgage under which the mortgagor has a credit score equivalent to a FICO score of at least 640 but less than 680, in an amount not exceeding 1.25 percent of the remaining insured principal balance (excluding the portion of the remaining balance attributable to the premium collected at the time of insurance and without taking into account delinquent payments or prepayments). ``(iii) For mortgages insured in fiscal year 2010 or thereafter, a mortgage under which the mortgagor has a credit score equivalent to a FICO score of 619 or less, but only if the Secretary certifies that such loans can be insured without resulting in a need for an appropriation for a credit subsidy. For such mortgages, the Secretary may charge premiums at levels authorized under items (bb) and (cc) of clause (ii)(II) and may establish a credit or FICO score limitation or impose such other requirements as are necessary to meet the conditions for certification under this clause. ``(E) Requirements for downpayment assistance entities.--Any entity participating in a program that provides downpayment assistance for a mortgage described in subparagraph (D) pursuant to the exception under subparagraph (C), which programs shall include programs of governmental agencies and private nonprofit organizations, shall, before the closing for the loan involved in the mortgage in connection with which such assistance is provided-- ``(i) offer to make available, to the mortgagor, counseling regarding the responsibilities and financial management involved in homeownership; ``(ii) if such offer is accepted by the mortgagor, make such counseling available for the mortgagor; and ``(iii) in the case of any such entity that is a private nonprofit organization, implement a conflict of interest policy that prohibits directors, officers, employees, and immediate family members from receiving financial benefits from any entity that is providing the program with goods or services other than the homeownership assistance program entity itself or its wholly owned affiliate. ``(F) Civil money penalties for improperly influencing appraisals.--The Secretary may impose a civil money penalty, in the same manner and to the same extent as for a violation under section 536, for compensating, instructing, inducing, coercing, or intimidating any person who conducts an appraisal of the property to be subject to a mortgage described in subparagraph (D) and under which any part of the funds required by subparagraph (A) are provided to a party described in subparagraph (C), or attempting to compensate, instruct, induce, coerce, or intimidate such a person, for the purpose of causing the appraised value assigned to the property under the appraisal to be based on any other factor other than the independent judgment of such person exercised in accordance with applicable professional standards.''. SEC. 3. LIMITATIONS ON RISK-BASED PRICING. Section 203(c) of the National Housing Act (12 U.S.C. 1709(c)) is amended by adding at the end the following new paragraphs: ``(3) Limitations on risk-based pricing.--Except as provided in paragraph (4), the Secretary of Housing and Urban Development shall not take any action on or after October 1, 2008, to implement or carry out-- ``(A) risk-based premiums, which are designed for mortgage lenders to offer borrowers an FHA-insured product that provides a range of mortgage insurance premium pricing, based on the risk that the insurance contract represents, as set forth in the Notice published in the Federal Register on May 13, 2008 (Vol. 73, No. 93, Pages 27703 through 27711) (effective July 14, 2008); or ``(B) any other risk-based premium product related to the insurance of any mortgage on a single family residence under this title, where the premium price for such new product is based in whole or in part on a borrower's Decision Credit Score, as that term is defined in the Notice referred to in subparagraph (A), or any successor thereto. ``(4) Flexible risk-based premiums.--Notwithstanding paragraph (3) of this subsection and section 2133 of the FHA Modernization Act of 2008 (Public Law 110-289): ``(A) Authority.--In the case only of a mortgage under which the mortgagor has a credit score equivalent to a FICO score of less than 600, the Secretary may establish a mortgage insurance premium structure involving a single premium payment collected prior to the insurance of the mortgage or annual payments (which may be collected on a periodic basis), or both, under which the rate of premiums for such a mortgage may vary according to the credit risk associated with the mortgagor and the rate of any annual premium for such a mortgage may vary according to such credit risk during the mortgage term as long as the basis for determining the variable rate is established before the execution of the mortgage. The Secretary may change a premium structure established under this subparagraph but only to the extent that such change is not applied to any mortgage already executed. ``(B) Establishment and alteration of premium structure.--A premium structure shall be established or changed under subparagraph (A) only by providing notice to mortgagees and to the Congress, at least 30 days before the premium structure is established or changed. ``(C) Annual report regarding premiums.--The Secretary shall submit a report to the Congress annually setting forth the rate structures and rates established and altered pursuant to this paragraph during the preceding 12-month period and describing how such rates were determined. ``(D) Considerations for premium structure.--When establishing and collecting premiums for mortgages insured under a premium structure established under this paragraph, the Secretary shall consider the following: ``(i) The effect of the proposed premiums or structure on the Secretary's ability to meet the operational goals of the Mutual Mortgage Insurance Fund as provided in section 202(a). ``(ii) Underwriting variables. ``(iii) The extent to which new pricing under the proposed premiums or structure has potential for acceptance in the private market. ``(iv) The administrative capability of the Secretary to administer the proposed premiums or structure. ``(v) The effect of the proposed premiums or structure on the Secretary's ability to maintain the availability of mortgage credit and provide stability to mortgage markets. ``(E) Authority to base premium prices on product risk.-- ``(i) Authority.--In establishing premium rates under this title, the Secretary may provide for variations in such rates according to the credit risk associated with the type of mortgage product that is being insured under this title, which may include providing that premium rates differ between fixed-rate mortgages and adjustable-rate mortgages insured pursuant to section 251, between mortgages for condominiums and mortgages for other interests in properties, between mortgages having different ratios of the principal obligation under the mortgage to the appraised value of the property, and between such other products as the Secretary considers appropriate. ``(F) Payment incentives.-- ``(i) Authority.--With respect to mortgages for which insured the Secretary is authorized to establish a premium structure under this paragraph, the Secretary shall provide that the payment incentive under subparagraph (ii) applies upon the expiration of the 5-year period beginning upon the time of insurance of such a mortgage, and the Secretary may provide that the payment incentive under clause (ii) applies upon the expiration of the 3-year period beginning upon the time of insurance of such a mortgage. The Secretary may limit such discretionary authority to mortgages prepaid or paid in full during the 2-year period beginning 3 years after the time of insurance of such a mortgage. ``(ii) Payment incentive.--In the case of any mortgage to which the payment incentive under this subparagraph applies, if, during the period referred to in clause (i), all mortgage payments, including insurance premiums, for such mortgage have been paid on a timely basis, upon the expiration of such period the Secretary shall refund to the mortgagor, upon payment in full of the obligation of the mortgage, all or a portion of-- ``(I) the amount by which the single premium payment for such mortgage collected at the time of insurance exceeded the amount of the single premium payment chargeable under paragraph (2) at the time of insurance for a mortgage of the same product type having the same terms, but for which the mortgagor has a credit score equivalent to a FICO score of 600 or more; and ``(II) in the case only of mortgages for which annual premiums are established and collected under subparagraph (G), the amount by which the cumulative amount of annual premiums paid exceeded the amount of the maximum annual premium that otherwise may be established and collected notwithstanding such subparagraph. ``(G) Option for higher annual premium in lieu of higher up-front premium.--In the case only of mortgages for which the Secretary is authorized to establish a premium structure under this paragraph, notwithstanding paragraph (2)(B) of this subsection, the Secretary may establish and collect, for a period not exceeding the first 5 years of the term of the mortgage, annual premium payments in an amount not exceeding 0.75 percent of the remaining insured principal balance of the mortgage (excluding the portion of the remaining balance attributable to the premium collected under paragraph (2)(A) and without taking into account delinquent payments or prepayments), except that-- ``(i) the Secretary may utilize such authority only for such classes of mortgagors that the Secretary determines would otherwise be subject to a single premium payment collected at the time of insurance exceeding 2.25 percent of the amount of the original insured principal obligation of the mortgage; and ``(ii) for such mortgages, the Secretary may not establish or collect a single premium payment collected at the time of insurance exceeding 2.25 percent of such original insured principal obligation.''.
summary: FHA Seller-Financed Downpayment Reform and Risk-Based Pricing Authorization Act of 2008 - (Sec. 2) Amends the National Housing Act to make exceptions to the prohibition against mortgage insurance for mortgages involving a downpayment using funds furnished by: (1) the seller or any party that benefits financially from the transaction (seller-financed downpayment); or (2) any third party that is reimbursed by the seller or any such party. Makes eligible for mortgage insurance, in spite of a seller-financed downpayment, any mortagors with credit scores equivalent to a FICO score of: (1) 680 or more; (2) at least 620 but less than 680; or (3) 619 or less. Prescribes conditions for mortgage insurance in the latter two situations. Requires entities participating in a governmental or private nonprofit program that provides downpayment assistance for such a mortgage to offer and make available, before loan closing, counseling about the responsibilities and financial management involved in homeownership. Authorizes the Secretary of Housing and Urban Development to impose civil money penalties for improperly influencing appraisals. (Sec. 3) Prohibits the Secretary from implementing: (1) risk-based premiums designed for mortgage lenders to offer a Federal Housing Administration (FHA)-insured product that provides a range of mortgage insurance premium pricing based upon a specified risk that the insurance contract represents; or (2) any other risk-based premium product for mortgage insurance on a single family residence where the premium price for such new product is based upon the borrower's Decision Credit Score. Makes an exception from such prohibition for flexible risk-based premiums. Authorizes the Secretary to establish, for a mortgagor whose FICO credit score is under 600, a mortgage insurance premium structure with a variable rate that reflects the mortgagor's credit risk, if the basis for determining such rate is established before the mortgage is executed. Requires notice to mortgagees and to Congress before such a premium structure is established or changed. Requires the Secretary to consider specified factors when premiums are established and collected under a flexible risk-based premium structure. Authorizes the Secretary to provide for variations in such rates according to the credit risk associated with the type of mortgage product that is being insured. Requires the Secretary to make payment incentives to a mortgagor, in the form of certain refunds, upon payment in full of timely mortgage payments. Authorizes the Secretary, for mortgages with a flexible risk-based premium, to establish a higher annual premium in lieu of a higher up-front premium.