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