H. Rept. 112-25 - 112th Congress (2011-2012)
March 07, 2011, As Reported by the Financial Services Committee

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House Report 112-25 - FHA REFINANCE PROGRAM TERMINATION ACT




[House Report 112-25]
[From the U.S. Government Printing 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rescinded and permanently canceled all unexpended balances remaining 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.