The House Financial Services Committee approved legislation Tuesday that lawmakers say will ensure the Federal Housing Administration (FHA) remains viable and continues its mission of insuring mortgage loans.
Congresswoman Maxine Waters (D-California) drafted the FHA Reform Act of 2010 (H.R. 5072) after rising defaults caused the federal agency's reserves to fall below the two percent level required by law.
The measure allows FHA to adjust its premium structure for new borrowers. In January, the agency requested legislative approval to raise the maximum annual premiums it can charge.
At that time, FHA decided to increased up-front mortgage insurance premiums from 1.75 percent to 2.25 percent Ã¢â‚¬" a move that did not require congressional approval. Now that the agency has been granted the authority to raise the annual fees assessed, FHA has said it will shift some of the premium increase from up-front to the annual cost, which is paid over the life of the loan instead of at the time of closing.
According to a statement from the House committee, FHA has filled a vital role in the nation's economy, helping 37
million Americans attain homeownership since 1934 and providing crucial insurance at a time when private lenders pulled back from the mortgage market.
Rep. Waters said, ""The economic crisis that started a couple of years ago and declining home prices have caused FHA's capital reserves to deteriorate in recent months, but under the leadership of Secretary Shaun Donovan and FHA Commissioner David Stevens, FHA has taken unprecedented administrative and regulatory steps to improve risk management and root out bad actors participating in the program. This legislation makes essential reforms to strengthen FHA's finances.""
H.R. 5072 also provides FHA with the authority to terminate lenders' approval to originate or underwrite loans backed by FHA insurance when FHA finds evidence of fraud or noncompliance. Lawmakers say this enhanced authority is needed, particularly in light of the recent cases of Lend America and Taylor Bean and Whitaker, who perpetuated fraud schemes spanning many years.
In addition, the legislation requires FHA to improve its internal reporting systems to better manage risk and to provide transparent data to the public and to Congress. This includes improving monitoring of early defaults and claims, tracking mortgage information by loan servicer, providing FHA with the ability to contract out for additional credit risk analysis, requiring mortgagees to report to FHA when they stop buying loans from other mortgagees, and calling for a Government Accountability Office study on FHA and Ginnie Mae.
The bill also creates a new deputy assistant secretary at FHA for risk management and regulatory affairs.
The House Financial Services Committee, however, did not approve an amendment proposed by Rep. Scott Garrett (R-New Jersey) that would have raised the minimum downpayment requirement for loans backed by FHA from the current level of 3.5 percent to 5 percent.