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115th Congress    }                                   {        Report
                        HOUSE OF REPRESENTATIVES
 2d Session       }                                   {       115-983

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



 
         PROTECT AFFORDABLE MORTGAGES FOR VETERANS ACT OF 2018

                                _______
                                

 September 26, 2018.--Committed to the Committee of the Whole House on 
            the State of the Union and ordered to be printed

                                _______
                                

Mr. Hensarling, from the Committee on Financial Services, submitted the 
                               following

                              R E P O R T

                        [To accompany H.R. 6737]

    The Committee on Financial Services, to whom was referred 
the bill (H.R. 6737) to amend the Economic Growth, Regulatory 
Relief, and Consumer Protection Act to clarify seasoning 
requirements for certain refinanced mortgage loans, and for 
other purposes, having considered the same, report favorably 
thereon without amendment and recommend that the bill do pass.

                          Purpose and Summary

    On September 7, 2018, Rep. Lee Zeldin introduced H.R. 6737, 
the ``Protect Affordable Mortgages for Veterans Act of 2018.'' 
H.R. 6737 would amend section 306(g) of the National Housing 
Act (12 U.S.C. 1721(g)(1)), as amended to provide a technical 
fix so that recently executed loans refinanced by the U.S. 
Department of Veterans Affairs (VA) Home Loans can remain 
eligible for pooling in the Government National Mortgage 
Association (Ginnie Mae) securities.

                  Background and Need for Legislation

    The goal of H.R. 6737 is to provide a technical correction 
that will allow previously executed loans refinanced by VA Home 
Loans to remain eligible for pooling into securities issued by 
the Government National Mortgage Association (``GNMA'' or 
``Ginnie Mae'').
    In recent years, the proportion of VA guaranteed loans in 
Ginnie Mae pools has grown, and in 2017, Ginnie Mae noted 
unusually fast prepayment speeds in its securities. Ginnie 
Mae's internal research and work with the VA shows a market for 
VA loans that is somewhat saturated with lenders and brokers 
making dozens of calls and sending dozens of letters to 
veterans in an attempt to get these homeowners to refinance 
their mortgages. Some lenders in the VA Home Loan space engaged 
in the practice of ``churning''--the refinancing of a home loan 
over and over again to generate fees and profits for lenders at 
the expense of the consumer and taxpayers. During these 
instances, the borrower may be left no better off and, in some 
cases, worse off in the long term.
    In response to these market dynamics, Ginnie Mae, in 
consultation with VA, decided in late 2016, that the most 
expeditious approach to curbing abuse in the short-term was to 
change its program standards for pooling streamline refinanced 
loans. Additionally, in December 2017, Ginnie Mae published APM 
17-06, which instituted seasoning requirements on streamlined 
and cash-out refinances (encompassing loans from the Federal 
Housing Administration, VA, and U.S. Department of 
Agriculture).
    On May 24, 2018, President Trump signed into law S. 2155, 
the ``Economic Growth, Regulatory Relief, and Consumer 
Protection Act'' (Pub. Law 115-174]. Section 309 of EGRRCPA 
added new requirements that were specific to VA refinances. 
Section 309 was effective upon enactment. Section 309(a) 
provides new requirements that must be met for refinanced 
Veterans Affairs loans to obtain a guarantee and be eligible 
for guaranteed timely principal and interest payments by Ginnie 
Mae. Those requirements include:
          1. Fee recoupment within 36 months
          2. Net tangible benefits to the borrower, measured as 
        a decrease of at least 50 basis points in the interest 
        rate in the case of a fixed-to-fixed refinance, and at 
        least 200 basis points in the interest rate in the case 
        of a fixed-to-floating refinance; and
          3. Seasoning of the initial loan for at least 210 
        days, calculated from the date of the first payment 
        made by the borrower to the note date of the refinanced 
        loan (at least six monthly payments must also be made 
        by the borrower).
    To implement Section 309, Ginnie Mae revised its Mortgage 
Backed Securities (MBS) pooling eligibility requirements and 
amended its MBS Guide to specify how Ginnie MBS are affected by 
the EGRRCPA. Ginnie Mae delineated that securities with an 
issuance date of May 1, 2018 or earlier were unaffected even if 
they do not meet the condition of the EGRRCPA, and Ginnie Mae 
securities with an issuance dated June 1, 2018 or later would 
comply with the new pooling requirements and conditions of the 
Act. As a result, there are a small number of loans that do not 
conform with the Act's requirements that were either originated 
or in the process of being originated before the May 31, 2018 
date of Ginnie's notice regarding the new seasoning 
requirements.
    Some VA loans that had been closed, but not yet securitized 
by May 24, 2018, the day that S. 2155 became law, were 
prevented from being eligible for GNMA securitization. 
Approximately 2,500 loans are designated as ``orphan'' loans 
when they were eligible for GNMA securitization at the time of 
closing but lost such eligibility after S. 2155 was enacted.
    As a result of the changes, some lenders now hold VA-
guaranteed refinances that are not eligible for Ginnie Mae 
pooling, despite the fact that the loans were eligible at the 
time of closing. For some lenders, this situation has the 
potential to create liquidity strains. H.R. 6737 appropriately 
strikes the Ginnie Mae seasoning provision to address the 
orphaning of existing loans and prevent future problems 
regarding re-performing loans, loss mitigation activities, and 
cash-out refinances, while doing nothing to weaken important 
anti-churning requirements.
    Nothing in this bill eliminates the VA loan seasoning and 
anti-churning protections. While the language in H.R. 6737 
removes Ginnie Mae's seasoning provision for its MBS, this was 
a duplicative and unnecessary requirement for Ginnie Mae. 
Section 309 of S. 2155 also contained similar loan seasoning 
requirements for loans originated through the VA, which Ginnie 
pools into its MBS. This provision of law will still be in 
effect and veterans will continue to have protection against 
loan churning.
    H.R. 6737 addresses concerns raised by Senators Thom Tillis 
(R-NC) and Elizabeth Warren (D-MA). Senators Tillis and Warren 
sent a letter to the Department of Housing and Urban 
Development on June 11, 2018 that stated, `'We recognize that 
there are a small number of loans that do not conform with the 
Act's requirements that were either originated or in the 
process of being originated before the May 31st date of Ginnie 
Mae's APM regarding new seasoning requirements. It was not our 
intention to ``orphan'' those loans, and we urge Ginnie and the 
VA to work with lenders and other federal agencies to attempt 
to ensure that those loans are not adversely affected by the 
enactment of the Act.'' The legislation ensures that certain 
loans, currently ineligible for GNMA securitization at closing, 
will continue to be eligible.

                                Hearings

    No hearings were held on H.R. 6737.

                        Committee Consideration

    The Committee on Financial Services met in open session on 
September 13, 2018, and ordered H.R. 6737 to be reported 
favorably to the House, without amendment, by a recorded vote 
of 49 yeas to 0 nays (Record vote no. FC-202), a quorum being 
present.

                            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. The 
sole recorded vote was on a motion by Chairman Hensarling to 
report the bill favorably to the House without amendment. The 
motion was agreed to by a recorded vote of 49 yeas to 0 nays 
(Record vote no. FC-202), a quorum being present.


[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                      Committee Oversight Findings

    Pursuant to clause 3(c)(1) of rule XIII of the Rules of the 
House of Representatives, the findings and recommendations of 
the Committee based on oversight activities under clause 
2(b)(1) of rule X of the Rules of the House of Representatives, 
are incorporated in the descriptive portions of this report.

                    Performance Goals and Objectives

    With respect to clause 3(c)(4) of rule XIII of the Rules of 
the House of Representatives, the Committee advises that the 
bill contains no measure that authorizes funding, so no 
statement of general performance goals and objectives for which 
any measure authorizes funding is required.

   New Budget Authority, Entitlement Authority, and Tax Expenditures

    The Committee has not received an estimate of new budget 
authority contained in the cost estimate prepared by the 
Director of the Congressional Budget Office pursuant to Sec. 
402 of the Congressional Budget Act of 1974. In compliance with 
clause 3(c)(2) of rule XIII of the Rules of the House, the 
Committee opines that H.R. 6737 will not establish any new 
budget or entitlement authority or create any tax expenditures.

                 Congressional Budget Office Estimates

    The cost estimate prepared by the Director of the 
Congressional Budget Office pursuant to Sec. 402 of the 
Congressional Budget Act of 1974 was not submitted timely to 
the Committee.

                       Federal Mandates Statement

    This information is provided in accordance with section 423 
of the Unfunded Mandates Reform Act of 1995.
    The Committee has determined that the bill does not contain 
Federal mandates on the private sector. The Committee has 
determined that the bill does not impose a Federal 
intergovernmental mandate on State, local, or tribal 
governments.

                      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

    With respect to clause 9 of rule XXI of the Rules of the 
House of Representatives, the Committee has carefully reviewed 
the provisions of the bill and states that the provisions of 
the bill do not contain any congressional earmarks, limited tax 
benefits, or limited tariff benefits within the meaning of the 
rule.

                    Duplication of Federal Programs

    In compliance with clause 3(c)(5) of rule XIII of the Rules 
of the House of Representatives, the Committee states that no 
provision of the bill establishes or reauthorizes: (1) a 
program of the Federal Government known to be duplicative of 
another Federal program; (2) a program included in any report 
from the Government Accountability Office to Congress pursuant 
to section 21 of Public Law 111-139; or (3) a program related 
to a program identified in the most recent Catalog of Federal 
Domestic Assistance, published pursuant to the Federal Program 
Information Act (Pub. L. No. 95-220, as amended by Pub. L. No. 
98-169).

                   Disclosure of Directed Rulemaking

    Pursuant to section 3(i) of H. Res. 5, (115th Congress), 
the following statement is made concerning directed rule 
makings: The Committee estimates that the bill requires no 
directed rule makings within the meaning of such section.

             Section-by-Section Analysis of the Legislation


Section 1. Short title

    This section titles the bill as the ``Protect Affordable 
Mortgages for Veterans Act of 2018.''

Section 2. Requirements for Ginnie Mae guarantee of securities

    Section 2 amends paragraph (1) of section 306(g) of the 
National Housing Act (12 U.S.C. 1721(g)(1)) by striking the 
second sentence (as added by section 309(b) of Public Law 115-
174).

         Changes in Existing Law Made by the Bill, as Reported

    In compliance with clause 3(e) of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the bill, as reported, are shown as follows (existing law 
proposed to be omitted is enclosed in black brackets, new 
matter is printed in italic, and existing law in which no 
change is proposed is shown in roman):

         Changes in Existing Law Made by the Bill, as Reported

  In compliance with clause 3(e) of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the bill, as reported, are shown as follows (existing law 
proposed to be omitted is enclosed in black brackets and 
existing law in which no change is proposed is shown in roman):

                          NATIONAL HOUSING ACT




           *       *       *       *       *       *       *
TITLE III--NATIONAL MORTGAGE ASSOCIATIONS

           *       *       *       *       *       *       *



  management and liquidation functions--government national mortgage 
                              association

  Sec. 306. (a) To carry out the purposes set forth in 
paragraph (c) of section 301, the Association is authorized and 
directed, as of the close of the cutoff date determined by the 
Association pursuant to section 303(d) of this title, to 
establish separate accountability for all of its assets and 
liabilities (exclusive of capital, surplus, surplus reserves, 
and undistributed earnings to be evidenced by preferred stock 
as provided in section 303(d) hereof, but inclusive of all 
rights and obligations under any outstanding contracts), and to 
maintain such separate accountability for the management and 
orderly liquidation of such assets and liabilities as provided 
in this section.
  (b) For the purposes of this section and to assure that, to 
the maximum extent, and as rapidly as possible, private 
financing will be substituted for Treasury borrowings otherwise 
required to carry mortgages held under the aforesaid separate 
accountability, the Association is authorized to issue, upon 
the approval of the Secretary of the Treasury, and have 
outstanding at any one time obligations having such maturities 
and bearing such rate or rates of interest as may be determined 
by the Association with the approval of the Secretary of the 
Treasury, to be redeemable at the option, of the Association 
before maturity in such manner as may be stipulated in such 
obligations; but in no event shall any such obligations be 
issued if, at the time of such proposed issuance, and as a 
consequence thereof, the resulting aggregate amount of its 
outstanding obligations under this subsection would exceed the 
amount of the Association's ownership under the aforesaid 
separate accountability, free from any liens or encumbrances, 
of cash, mortgages, and obligations of the United States or 
guaranteed thereby, or obligations, participations, or other 
instruments which are lawful investments for fiduciary, trust, 
or public funds. The proceeds of any private financing effected 
under this subsection shall be paid to the Secretary of the 
Treasury in reduction of the indebtedness of the Association to 
the Secretary of the Treasury under the aforesaid separate 
accountability. The Association shall insert appropriate 
language in all of its obligations issued under this subsection 
clearly indicating that such obligations, together with the 
interest thereon, are not guaranteed by the United States and 
do not constitute a debt or obligation of the United States or 
of any agency or instrumentality thereof other than the 
Association. The Association is authorized to purchase in the 
open market any of its obligations outstanding under this 
subsection at any time and at any price.
  (c) No mortgage shall be purchased by the Association in its 
operations under this section except pursuant to and in 
accordance with the terms of a contract or commitment to 
purchase the same made prior to the cutoff date provided for in 
section 303(d), which contract or commitment became a part of 
the aforesaid separate accountability, and the total amount of 
mortgages and commitments held by the Association under this 
section shall not, in any event, exceed $3,350,000,000: 
Provided, That such maximum amount shall be progressively 
reduced by the amount of cash realizations on account of 
principal of mortgages held under the aforesaid separate 
accountability and by cancellation of any commitments to 
purchase mortgages thereunder, as reflected by the books of the 
Association, with the objective that the entire aforesaid 
maximum amount shall be eliminated with the orderly liquidation 
of all mortgages held under the aforesaid separate 
accountability: And provided further, That nothing in this 
subsection shall preclude the Association from granting such 
usual and customary increases in the amounts of outstanding 
commitments (resulting from increased costs or otherwise) as 
have theretofore been covered by like increases in commitments 
granted by the agencies of the Federal Government insuring or 
guaranteeing the mortgages. There shall be excluded from the 
total amounts set forth in this subsection the amounts of any 
mortgages which, subsequent to May 31, 1954, are transferred by 
law to the Association and held under the aforesaid separate 
accountability.
  (d) The Association may issue to the Secretary of the 
Treasury its obligations in an amount outstanding at any one 
time sufficient to enable the Association to carry out it 
functions under this section, such obligations to mature not 
more than five years from their respective dates of issue, to 
be redeemable at the option of the Association before maturity 
in such manner as may be stipulated in such obligations. Each 
such obligation shall bear interest at a rate determined by the 
Secretary of the Treasury, taking into consideration the 
current average rate on outstanding marketable obligations of 
the United States as of the last day of the month preceding the 
issuance of the obligation of the Association. The Secretary of 
the Treasury is authorized to purchase any obligations of the 
Association to be issued under this section, and for such 
purpose the Secretary of the Treasury is authorized to use as a 
public debt transaction the proceeds from the sale of any 
securities issued under chapter 31 of title 31, United States 
Code, and the purposes for which securities may be issued under 
chapter 31 of title 31, United States Code, are extended to 
include any purchases of the Association's obligations 
hereunder.
  (e) Notwithstanding any other provision of law, the 
Association is authorized, under the aforesaid separate 
accountability, to make commitments to purchase, and to 
purchase, service, or sell any obligations offered to it by the 
Secretary of Housing and Urban Development, or any mortgages 
covering residential property offered to it by any Federal 
instrumentality, or the head thereof. There shall be excluded 
from the total amounts set forth in subsetion (c) the amounts 
of any obligations or mortgages purchased by the Association 
pursuant to this subsection.
  (f) Notwithstanding any of the provisions of this Act or of 
any other law, an amount equal to the net decrease for the 
preceding fiscal year in the aggregate principal amount of all 
mortgages owned by the Association under this section shall, as 
of July 1 of each of the years 1961 through 1964, be 
transferred to and merged with the authority provided under 
section 305(a), and the amount of such authority as specified 
in section 305(c) shall be increased by an amount so 
transferred.
  (g)(1) The Association is authorized, upon such terms and 
conditions as it may deem appropriate, to guarantee the timely 
payment of principal of and interest on such trust certificates 
or other securities as shall (i) be issued by the corporation 
under section 304(d), or by any other issuer approved for the 
purposes of this subsection by the Association, and (ii) be 
based on and backed by a trust or pool composed of mortgages 
which are insured under the National Housing Act, or which are 
insured or guaranteed under the Servicemen's Readjustment Act 
of 1944, title V of the Housing Act of 1949, or chapter 37 of 
title 38, United States Code; or guaranteed under section 184 
of the Housing and Community Development Act of 1992. [The 
Association may not guarantee the timely payment of principal 
and interest on a security that is backed by a mortgage insured 
or guaranteed under chapter 37 of title 38, United States Code, 
and that was refinanced until the later of the date that is 210 
days after the date on which the first monthly payment is made 
on the mortgage being refinanced and the date on which 6 full 
monthly payments have been made on the mortgage being 
refinanced.] The Association shall collect from the issuer a 
reasonable fee for any guaranty under this subsection and shall 
make such charges as it may determine to be reasonable for the 
analysis of any trust or other security arrangement proposed by 
the issuer. In the event the issuer is unable to make any 
payment of principal of or interest on any security guaranteed 
under this subsection, the Association shall make such payment 
as and when due in cash, and thereupon shall be subrogated 
fully to the rights satisfied by such payment. In any case in 
which (I) Federal law requires the reduction of the interest 
rate on any mortgage backing a security guaranteed under this 
subsection, (II) the mortgagor under the mortgage is a person 
in the military service, and (III) the issuer of such security 
fails to receive from the mortgagor the full amount of interest 
payment due, the Association may make payments of interest on 
the security in amounts not exceeding the difference between 
the amount payable under the interest rate on the mortgage and 
the amount of interest actually paid by the mortgagor. The 
Association is hereby empowered, in connection with any 
guaranty under this subsection, whether before or after any 
default, to provide by contract with the issuer for the 
extinguishment, upon default by the issuer, of any redemption, 
equitable, legal, or other right, title, or interest of the 
issuer in any mortgage or mortgages constituting the trust or 
pool against which the guaranteed securities are issued; and 
with respect to any issue of guaranteed securities, in the 
event of default and pursuant otherwise to the terms of the 
contract, the mortgages that constitute such trust or pool 
shall become the absolute property of the Association subject 
only to the unsatisfied rights of the holders of the securities 
based on and backed by such trust or pool. No State or local 
law, and no Federal law (except Federal law enacted expressly 
in limitation of this subsection after the effective date of 
this sentence), shall preclude or limit the exercise by the 
Association of (A) its power to contract with the issuer on the 
terms stated in the preceding sentence, (B) its rights to 
enforce any such contract with the issuer, or (C) its ownership 
rights, as provided in the preceding sentence, in the mortgages 
constituting the trust or pool against which the guaranteed 
securities are issued. The full faith and credit of the United 
States is pledged to the payment of all amounts which may be 
required to be paid under any guaranty under this subsection. 
There shall be excluded from the total amounts set forth in 
subsection (c) the amounts of any mortgages acquired by the 
Association as a result of its operations under this 
subsection.
  (2) Notwithstanding any other provision of law and subject 
only to the absence of qualified requests for guarantees, to 
the authority provided in this subsection, and to the extent of 
or in such amounts as any funding limitation approved in 
appropriation Acts, the Association shall enter into 
commitments to issue guarantees under this subsection in an 
aggregate amount of $110,000,000,000 during fiscal year 1996. 
There are authorized to be appropriated to cover the costs (as 
such term is defined in section 502 of the Congressional Budget 
Act of 1974) of guarantees issued under this Act by the 
Association such sums as may be necessary for fiscal year 1996.
  (3)(A) No fee or charge in excess of 6 basis points may be 
assessed or collected by the United States (including any 
executive department, agency, or independent establishment of 
the United States) on or with regard to any guaranty of the 
timely payment of principal or interest on securities or notes 
based on or backed by mortgages that are secured by 1- to 4-
family dwellings and (i) insured by the Federal Housing 
Administration under title II of the National Housing Act; or 
(ii) insured or guaranteed under the Serviceman's Readjustment 
Act of 1944, chapter 37 of title 38, United States Code, or 
title V of the Housing Act of 1949.
  (B) The fees charged for the guaranty of securities or on 
notes based on or backed by mortgages not referred to in 
subparagraph (A), as authorized by other provisions of law, 
shall be set by the Association at a level not more than 
necessary to create reserves sufficient to meet anticipated 
claims based upon actuarial analysis, and for no other purpose.
  (C) Fees or charges for the issuance of commitments or 
miscellaneous administrative fees of the Association shall not 
be on a competitive auction basis and shall remain at the level 
set for such fees or charges as of September 1, 1985, except 
that such fees or charges may be increased if reasonably 
related to the cost of administering the program, and for no 
other purpose.
  (D) Not less than 90 days before increasing any fee or charge 
under subparagraph (B) or (C), the Secretary shall submit to 
the Congress a certification that such increase is solely for 
the purpose specified in such subparagraph.
  (E)(i) Notwithstanding subparagraphs (A) through (D), fees 
charged for the guarantee of, or commitment to guarantee, 
multiclass securities backed by a trust or pool of securities 
or notes guaranteed by the Association under this subsection, 
and other related fees shall be charged by the Association in 
an amount the Association deems appropriate. The Association 
shall take such action as may be necessary to reasonably assure 
that such portion of the benefit, resulting from the 
Association's multiclass securities program, as the Association 
determines is appropriate accrues to mortgagors who execute 
eligible mortgages after the date of the enactment of this 
subparagraph.
  (ii) The Association shall provide for the initial 
implementation of the program for which fees are charged under 
the first sentence of clause (i) by notice published in the 
Federal Register. The notice shall be effective upon 
publication and shall provide an opportunity for public 
comment. Not later than 12 months after publication of the 
notice, the Association shall issue regulations for such 
program based on the notice, comments received, and the 
experience of the Association in carrying out the program 
during such period.
  (iii) The Association shall consult with persons or entities 
in such manner as the Association deems appropriate to ensure 
the efficient commencement and operation of the multiclass 
securities program.
  (iv) No State or local law, and no Federal law (except 
Federal law enacted expressly in limitation of this clause 
after the effective date of this subparagraph) shall preclude 
or limit the exercise by the Association of its power to 
contract with persons or entities, and its rights to enforce 
such contracts, for the purpose of ensuring the efficient 
commencement and continued operation of the multiclass 
securities program.

           *       *       *       *       *       *       *


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