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116th Congress    }                                 {    Rept. 116-138
                        HOUSE OF REPRESENTATIVES
 1st Session      }                                 {           Part 1

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



 
        PROTECTING AFFORDABLE MORTGAGES FOR VETERANS ACT OF 2019

                                _______
                                

                  July 9, 2019.--Ordered to be printed

                                _______
                                

  Mr. Takano, from the Committee on Veterans' Affairs, submitted the 
                               following

                              R E P O R T

                        [To accompany H.R. 1988]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Veterans' Affairs, to whom was referred 
the bill (H.R. 1988) to clarify seasoning requirements for 
certain refinanced mortgage loans, and for other purposes, 
having considered the same, report favorably thereon with an 
amendment and recommend that the bill as amended do pass.

                                CONTENTS

                                                                   Page
Purpose and Summary..............................................     2
Background and Need for Legislation..............................     2
Hearings.........................................................     3
Subcommittee Consideration.......................................     3
Committee Consideration..........................................     3
Committee Votes..................................................     3
Committee Oversight Findings.....................................     3
Statement of General Performance Goals and Objectives............     4
New Budget Authority, Entitlement Authority, and Tax Expenditures     4
Earmarks and Tax and Tariff Benefits.............................     4
Committee Cost Estimate..........................................     4
Congressional Budget Office Estimate.............................     4
Federal Mandates Statement.......................................     7
Advisory Committee Statement.....................................     7
Constitutional Authority Statement...............................     7
Applicability to Legislative Branch..............................     7
Statement on Duplication of Federal Programs.....................     8
Disclosure of Directed Rulemaking................................     8
Section-by-Section Analysis of the Legislation...................     8
Changes in Existing Law Made by the Bill as Reported.............     8

    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 ``Protecting Affordable Mortgages for 
Veterans Act of 2019''.

SEC. 2. SEASONING REQUIREMENTS FOR CERTAIN REFINANCED MORTGAGE LOANS.

  (a) Ginnie Mae.--Paragraph (1) of section 306(g) of the National 
Housing Act (12 U.S.C. 1721(g)(1)) is amended by striking the second 
sentence (as added by section 309(b) of Public Law 115-174).
  (b) Veterans Loans.--Section 3709 of title 38, United States Code, is 
amended by striking subsection (c) and inserting the following:
  ``(c) Loan Seasoning.--Except as provided in subsection (d) and 
notwithstanding section 3703 of this title or any other provision of 
law, a loan to a veteran for a purpose specified in section 3710 of 
this title that is a refinance may not be guaranteed or insured under 
this chapter until the date that is the later of--
          ``(1) the date on which the borrower has made at least six 
        consecutive monthly payments on the loan being refinanced; and
          ``(2) the date that is 210 days after the first payment due 
        date of the loan being refinanced.''.
  (c) Rule of Construction.--Nothing in this Act may be construed to 
restrict or otherwise modify any authority of the Government National 
Mortgage Association.

                          Purpose and Summary

    H.R. 1988, the ``Protect Affordable Mortgages for Veterans 
Act of 2019'' was introduced by Representative David Scott, 
along with Representative Mike Levin, Chairman of the 
Subcommittee on Economic Opportunity, Representative Andy Barr, 
and Representative Lee Zeldin, on March 28, 2019. H.R. 1988 
clarifies loan seasoning requirements of VA Home Loans, as 
created by the ``Economic Growth, Regulatory Relief, and 
Consumer Protection Act,'' Public Law 115-174.

                  Background and Need for Legislation

    The measure clarifies loan seasoning requirements of VA 
Home Loans, as created by Section 309 of Public Law 115-174. 
The loan seasoning requirements were created to curb abuses by 
lenders who were targeting veterans for refinancing their VA 
Home loan multiple times in quick succession by slightly 
lowering the interest rate, but adding fees to the loan amount, 
which ended up costing the veteran more. Unfortunately, the 
language in PL 115-174 was not specific on when the loan 
seasoning period started (the day the first payment was due, 
versus the day the first payment was actually made), so there 
were about 2,500 loans that were created before the Government 
National Mortgage Association (GINNIE MAE) issued further 
guidance, which are in violation of GINNIE MAE regulations.
    This bill clarifies PL 115-174, and brings those 
approximately 2,500 loan into good standing, so that the 
lenders do not have to call them in, forcing the veterans to 
find a new home loan, which would be at a higher interest rate 
than their current loan (because interest rates have gone up.) 
If this fix does not go into effect by the end of May, the 
Inspector General with jurisdiction over GINNIE MAE (the U.S. 
Department of Housing and Urban Development's Inspector 
General) has directed that these loans be pulled from the 
GINNIE MAE mortgage backed securities pools, which would in 
effect, force the lenders to call in the loans on the veterans.

                                Hearings

    For the purposes of section 103(i) of H. Res. 6 of the 
116th Congress--the following hearings and meetings were used 
to develop or consider H.R. 1988.
    On April 9, 2019, the Subcommittee on Economic Opportunity 
conducted a legislative hearing on various bills introduced 
during the 116th Congress, including H.R. 1988.
    The following witnesses testified:
          Ms. Margarita Devlin, Principal Deputy Under 
        Secretary for Benefits, Veterans Benefits 
        Administration, U.S. Department of Veterans Affairs. 
        Ms. Ashlynne Haycock, Deputy Policy Director, Education 
        Support Services, Tragedy Assistance Program for 
        Survivors (TAPS). Mr. Patrick Murray, Deputy Director, 
        National Legislative Service, The Veterans of Foreign 
        Wars. Mr. John Kamin, Credentialing and Education 
        Policy Associate, National Veterans Employment and 
        Education Division, The American Legion. Ms. Rebecca 
        Burgess, Program Manager Citizenship Project, American 
        Enterprise Institute.
    Statements for the record were submitted by:
          Disabled American Veterans.

                       Subcommittee Consideration

    On May 1, 2019, the Subcommittee on Economic Opportunity 
met in an open markup session, a quorum being present, and 
ordered H.R. 1988 reported favorably to the Committee on 
Veterans' Affairs by voice vote.
    During the May 1, 2019 consideration, the Subcommittee 
considered H.R. 1988 as introduced. No amendments were offered.

                        Committee Consideration

    On May 8, 2019, the Committee on Veterans' Affairs met in 
an open markup session, a quorum being present, and ordered 
H.R. 1988, as amended, reported favorably to the House of 
Representatives by voice vote.
    During the May 8, 2019 consideration, the Subcommittee 
considered H.R. 1988 as an amendment in the nature of a 
substitute to correct drafting errors. No other amendments were 
offered.

                            Committee Votes

    Clause 3(b) of rule XIII of the Rules of the House of 
Representatives requires the Committee to list the recorded 
votes on the motion to report the legislation and amendments 
thereto. There were no recorded votes taken on amendments or in 
connection with ordering H.R. 1988 reported to the House. A 
motion by Ranking Member Phil Roe of Tennessee to report H.R. 
1988 favorably to the House of Representatives was agreed to by 
voice vote.

                      Committee Oversight Findings

    In compliance with clause 3(c)(1) of rule XIII and clause 
(2)(b)(1) of rule X of the Rules of the House of 
Representatives, the Committee's oversight findings and 
recommendations are reflected in the descriptive portions of 
this report.

         Statement of General Performance Goals and Objectives

    In accordance with clause 3(c)(4) of rule XIII of the Rules 
of the House of Representatives, the Committee's performance 
goals and objectives are to clarifies loan seasoning 
requirements of VA Home Loans, as created by Section 309 of 
Public Law 115-174.

   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.

                  Earmarks and Tax and Tariff Benefits

    H.R. 1988 does not contain any Congressional earmarks, 
limited tax benefits, or limited tariff benefits as defined in 
clause 9 of rule XXI of the Rules of the House of 
Representatives.

                        Committee Cost Estimate

    The Committee adopts as its own the cost estimate on H.R. 
1988 prepared by the Director of the Congressional Budget 
Office pursuant to section 402 of the Congressional Budget Act 
of 1974.

               Congressional Budget Office Cost Estimate

    With respect to the requirements of clause 3(c)(2) of rule 
XIII of the Rules of the House of Representatives and section 
308(a) of the Congressional Budget Act of 1974 and with respect 
to requirements of clause (3)(c)(3) of rule XIII of the Rules 
of the House of Representatives and section 402 of the 
Congressional Budget Act of 1974, the Committee has requested 
and received a cost estimate for this bill from the Director of 
Congressional Budget Office. The Congressional Budget Office 
cost estimate finds that the legislation results in additional 
offsetting collections from Ginnie Mae's program of $3 million 
in 2019 and would have no significant net effect on the federal 
budget.

                                     U.S. Congress,
                               Congressional Budget Office,
                                      Washington, DC, June 5, 2019.
Hon. Mark Takano,
Chairman, Committee on Veterans' Affairs,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 1988, the 
Protecting Affordable Mortgages for Veterans Act of 2019.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Robert Reese.
            Sincerely,
                                         Phillip L. Swagel,
                                                          Director.
    Enclosure.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    

    Bill summary: H.R. 1988 would authorize the Government 
National Mortgage Association (Ginnie Mae) to guarantee 
securities that contain certain mortgages refinanced by the 
Department of Veterans Affairs (VA) mortgage guarantee program.
    Estimated Federal cost: The estimated budgetary effect of 
H.R. 1988 is shown in Table 1. The costs of the legislation 
fall within budget function 370 (commerce and housing credit).

                                                   TABLE 1.--ESTIMATED BUDGETARY EFFECTS OF H.R. 1988
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                     By fiscal year, millions of dollars--
                                                      --------------------------------------------------------------------------------------------------
                                                        2019   2020   2021   2022   2023   2024   2025   2026   2027   2028   2029  2019-2024  2019-2029
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                              Decreases in Direct Spending
 
Estimated Budget Authority...........................     -3      0      0      0      0      0      0      0      0      0      0         0         -3
Estimated Outlays....................................     -3      0      0      0      0      0      0      0      0      0      0         0         -3
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Basis of estimate: For this estimate, CBO assumes that H.R. 
1988 will be enacted near the end of fiscal year 2019 and that 
Ginnie Mae will securitize the additional VA mortgages in 
fiscal year 2019.
    Background: Ginnie Mae guarantees securities backed by 
pools of mortgages that are insured by federal agencies such as 
VA. Typically, 98 percent of VA mortgages are pooled into 
mortgage-backed securities (MBSs) and guaranteed by Ginnie Mae 
in the first few months after they are originated. In May 2018 
the Congress enacted legislation (Public Law 115-174) that 
prohibited VA from refinancing existing VA mortgages until they 
were determined to be seasoned and also prohibited Ginnie Mae 
from guaranteeing MBSs containing such mortgages. A mortgage is 
considered to be seasoned when the borrower has made six months 
of payments or when 210 days have passed since the first 
monthly payment was made; whichever occurs later.
    In the weeks before P.L. 115-174 was enacted, CBO estimates 
about 2,500 unseasoned mortgages with a total value of about 
$630 million were refinanced under VA's mortgage program. 
According to Ginnie Mae, because those VA mortgages were 
unseasoned when they were refinanced they are not eligible to 
be included in MBSs guaranteed by Ginnie Mae.
    Direct spending: H.R. 1988 would authorize Ginnie Mae to 
guarantee MBSs containing those unseasoned mortgages from the 
weeks before P.L. 115-174 was enacted. Under the bill, CBO 
estimates that 98 percent of those mortgages, with a value of 
about $620 million, would be included in Ginnie Mae's MBS 
program in 2019. After 2019, no additional mortgage guarantees 
would stem from enacting H.R. 1988 because the seasoning 
restrictions for mortgages refinanced by VA would still apply.
    In exchange for the Ginnie Mae guarantee, issuers pay a fee 
on the pooled mortgages that back those securities. CBO 
estimates that the net present value of the fees collected by 
Ginnie Mae will exceed the cost of any default losses on those 
securities in each year. Using the methodology specified in the 
Federal Credit Reform Act (FCRA), CBO estimates that Ginnie 
Mae's MBS program will have a subsidy rate of -0.44 percent in 
2019. A negative subsidy for a federal credit program can occur 
if the net present value of the up-front and annual fees 
charged for a loan guarantee is greater than the estimated 
default costs associated with that guarantee.\1\ Multiplying 
the $620 million in mortgages that CBO estimates would be 
guaranteed by Ginnie Mae under H.R. 1988 by the subsidy rate of 
-0.44 percent results in additional offsetting collections 
(which are recorded in the budget as reductions in direct 
spending) from Ginnie Mae's MBS program of $3 million in 2019.
---------------------------------------------------------------------------
    \1\A present value expresses a flow of past and future income or 
payments as a single amount received or paid at a specific time. The 
value depends on the rate of interest, known as the discount rate, used 
to translate past and future cash flows into current dollars at that 
time. Under current law, the budgetary effects for Ginnie Mae's 
guarantees are calculated under procedures specified in FCRA. Under 
FCRA, projected future cash flows are discounted to the present using 
interest rates on Treasury Securities.
---------------------------------------------------------------------------
    Alternative budgetary treatment: The estimated cost of H.R. 
1988 depends on the method used to calculate the subsidy rate 
for MBSs guaranteed by Ginnie Mae. Under current law, the 
budgetary effects of Ginnie Mae's program are measured in the 
budget according to the procedures established in FCRA. 
However, as required by S. Con. Res 71, the Concurrent 
Resolution on the Budget for Fiscal Year 2018, CBO also has 
prepared a cost estimate for H.R. 1988 using a fair-value 
approach to estimating the budgetary effect on Ginnie Mae.
    The fair-value approach is an alternative to the approach 
specified in FCRA. Both approaches rely on the same projections 
of future cash flows for guarantee programs, and both account 
for the lifetime cost of the new guarantees made in a given 
year (including the expected cost of losses net of fees 
collected). The fair-value estimates differ from FCRA estimates 
by recognizing that the government's assumption of financial 
risk has a cost that exceeds the average amount of losses that 
would be expected from defaults. The higher financial risk is 
reflected in higher fees private entities charge for similar 
guarantees on the basis of market prices. In practice, the main 
difference between FCRA estimates and fair-value estimates is 
the discount rate used to calculate the present value of 
estimated future guarantee costs and receipts. Fair-value 
estimates use higher discount rates that incorporate a premium 
for market risk.
    Using the fair-value approach, CBO estimates that the 
subsidy rate for Ginnie Mae guarantees is effectively zero 
because Ginnie Mae's fees are similar to what a private entity 
would charge for guaranteeing the same MBSs. Thus, under the 
fair-value method of estimating the subsidy rate for Ginnie Mae 
H.R. 1988 would have no significant net effect on the federal 
budget.
    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 (-$3 million in 2019) that 
are subject to those pay-as-you-go procedures are shown in 
Table 1.
    Increase in long-term deficits: None.
    Mandates: None.
    Previous CBO estimate: On June 5, 2019, CBO transmitted a 
cost estimate for H.R. 1988, the Protecting Affordable 
Mortgages for Veterans Act of 2019, as ordered reported by the 
House Committee on Financial Services on May 8, 2019. The two 
versions of the bill are similar and their estimated costs are 
the same.
    Estimate prepared by: Federal costs: Robert Reese; 
Mandates: Rachel Austin.
    Estimate reviewed by: Kim P. Cawley, Chief, Natural and 
Physical Resources Cost Estimates Unit; H. Samuel Papenfuss, 
Deputy Assistant Director for Budget Analysis.

                       Federal Mandates Statement

    The Committee adopts as its own the estimate of Federal 
mandates regarding H.R. 1988 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 would be created by H.R. 
1988.

                   Constitutional Authority Statement

    Pursuant to Article I, section 8 of the United States 
Constitution, H.R. 1988 is authorized by Congress' power to 
``provide for the common Defense and general Welfare of the 
United States.''

                  Applicability to Legislative Branch

    The Committee finds that H.R. 1988 does not relate to the 
terms and conditions of employment or access to public services 
or accommodations within the legislative branch.

              Statement on Duplication of Federal Programs

    Pursuant to clause 3(c)(5) of rule XIII of the Rules of the 
House of Representatives, the Committee finds that no provision 
of H.R. 1988 establishes or reauthorizes a program of the 
Federal Government known to be duplicative of another Federal 
program, a program that was included in any report from the 
Government Accountability Office to Congress pursuant to 
section 21 of Public Law 111-139, or a program related to a 
program identified in the most recent Catalog of Federal 
Domestic Assistance.

                   Disclosure of Directed Rulemaking

    Pursuant to clause 3(c)(5) of rule XIII, the Committee 
estimates that H.R. 1988 contains no directed rule making that 
would require the Secretary to prescribe regulations.

             Section-by-Section Analysis of the Legislation


Section 1: Short title

Section 2: Clarifies that the date a VA Home Loan can be refinanced is 
        the later of:

    (1) the date on which the borrower has made at least six 
consecutive monthly payments on the loan being refinanced; and
    (2) the date that is 210 days after the first payment due 
date of the loan being refinanced.

         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, 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, new 
matter is printed in italic, 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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                      TITLE 38, UNITED STATES CODE




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PART III--READJUSTMENT AND RELATED BENEFITS

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CHAPTER 37--HOUSING AND SMALL BUSINESS LOANS

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SUBCHAPTER I--GENERAL

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Sec. 3709. Refinancing of housing loans

  (a) Fee Recoupment.--Except as provided in subsection (d) and 
notwithstanding section 3703 of this title or any other 
provision of law, a loan to a veteran for a purpose specified 
in section 3710 of this title that is being refinanced may not 
be guaranteed or insured under this chapter unless--
          (1) the issuer of the refinanced loan provides the 
        Secretary with a certification of the recoupment period 
        for fees, closing costs, and any expenses (other than 
        taxes, amounts held in escrow, and fees paid under this 
        chapter) that would be incurred by the borrower in the 
        refinancing of the loan;
          (2) all of the fees and incurred costs are scheduled 
        to be recouped on or before the date that is 36 months 
        after the date of loan issuance; and
          (3) the recoupment is calculated through lower 
        regular monthly payments (other than taxes, amounts 
        held in escrow, and fees paid under this chapter) as a 
        result of the refinanced loan.
  (b) Net Tangible Benefit Test.--Except as provided in 
subsection (d) and notwithstanding section 3703 of this title 
or any other provision of law, a loan to a veteran for a 
purpose specified in section 3710 of this title that is 
refinanced may not be guaranteed or insured under this chapter 
unless--
          (1) the issuer of the refinanced loan provides the 
        borrower with a net tangible benefit test;
          (2) in a case in which the original loan had a fixed 
        rate mortgage interest rate and the refinanced loan 
        will have a fixed rate mortgage interest rate, the 
        refinanced loan has a mortgage interest rate that is 
        not less than 50 basis points less than the previous 
        loan;
          (3) in a case in which the original loan had a fixed 
        rate mortgage interest rate and the refinanced loan 
        will have an adjustable rate mortgage interest rate, 
        the refinanced loan has a mortgage interest rate that 
        is not less than 200 basis points less than the 
        previous loan; and
          (4) the lower interest rate is not produced solely 
        from discount points, unless--
                  (A) such points are paid at closing; and
                  (B) such points are not added to the 
                principal loan amount, unless--
                          (i) for discount point amounts that 
                        are less than or equal to one discount 
                        point, the resulting loan balance after 
                        any fees and expenses allows the 
                        property with respect to which the loan 
                        was issued to maintain a loan to value 
                        ratio of 100 percent or less; and
                          (ii) for discount point amounts that 
                        are greater than one discount point, 
                        the resulting loan balance after any 
                        fees and expenses allows the property 
                        with respect to which the loan was 
                        issued to maintain a loan to value 
                        ratio of 90 percent or less.
  [(c) Loan Seasoning.--Except as provided in subsection (d) 
and notwithstanding section 3703 of this title or any other 
provision of law, a loan to a veteran for a purpose specified 
in section 3710 of this title that is refinanced may not be 
guaranteed or insured under this chapter until the date that is 
the later of--
          [(1) the date that is 210 days after the date on 
        which the first monthly payment is made on the loan; 
        and
          [(2) the date on which the sixth monthly payment is 
        made on the loan.]
  (c) Loan Seasoning.--Except as provided in subsection (d) and 
notwithstanding section 3703 of this title or any other 
provision of law, a loan to a veteran for a purpose specified 
in section 3710 of this title that is a refinance may not be 
guaranteed or insured under this chapter until the date that is 
the later of--
          (1) the date on which the borrower has made at least 
        six consecutive monthly payments on the loan being 
        refinanced; and
          (2) the date that is 210 days after the first payment 
        due date of the loan being refinanced.
  (d) Cash-out Refinances.--(1) Subsections (a) through (c) 
shall not apply in a case of a loan refinancing in which the 
amount of the principal for the new loan to be guaranteed or 
insured under this chapter is larger than the payoff amount of 
the refinanced loan.
  (2) Not later than 180 days after the date of the enactment 
of this section, the Secretary shall promulgate such rules as 
the Secretary considers appropriate with respect to refinancing 
described in paragraph (1) to ensure that such refinancing is 
in the financial interest of the borrower, including rules 
relating to recoupment, seasoning, and net tangible benefits.

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