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House Passes FHA Reform Bill Authorizing Higher Premiums

In a near unanimous vote of 406 to 4 Thursday, the U.S. House of Representatives passed a bill intended to replenish the coffers of the federal agency that insures mortgages against default, the ""Federal Housing Administration"":http://www.fha.gov (FHA).


The FHA Reform Act (H.R. 5072) enables the agency to reform its current mortgage insurance premium structure by shifting some of the upfront cost to the annual premium â€" a move that HUD Secretary Shaun Donovan says will increase FHA’s capital reserves and reduce risks to the FHA insurance fund.

The legislation grants FHA the authority to nearly triple borrowers’ annual premium cap, from the current rate of 0.55 percent, to as high as 1.50 percent. The federal mortgage insurer says this will generate an estimated $300 million a month in additional receipts, while costing the average FHA borrower $42 more in monthly premiums.

The bill also strengthens FHA’s powers to withdraw its approval from lenders with high default rates and protect its insurance fund from losses when loans don’t meet the agency’s underwriting standards or are considered fraudulent.


Lawmakers rejected an amendment to raise FHA’s downpayment requirement, so the minimum remains at 3.5 percent. They did, though, include a mandate that the agency take a closer look at its downpayment structure every year and submit a report to Congress on its findings.

""We are pleased that the U.S. House of Representatives passed the FHA Reform Act of 2010 today by an overwhelming margin,” Donovan said. ""The FHA is playing a vital role in the current housing market. The changes that we are implementing coupled with this bill will ensure that FHA can continue to serve as a bridge to economic recovery and that mortgage financing remains available until private capital returns.”

According to ""a statement released"":http://www.dems.gov/blog/house-acts-to-stabilize-the-housing-market-and-protect-taxpayers by House Democrats, the reforms outlined in the bill will “rebuild the American dream of homeownership,” while reducing federal spending by $2.5 billion over the next five years and holding FHA accountable.

The FHA Reform Act is supported by a wide coalition of organizations, including the National Association of Realtors, Mortgage Bankers Association, and National Association of Home Builders.

Robert E. Story, Jr., CMB, chairman of the ""Mortgage Bankers Association"":http://www.mortgagebankers.org, commented, “The reforms contained in this bill will help stabilize FHA's finances by allowing the agency to raise its annual premiums and better take corrective action against lenders who are putting the program at risk. Importantly, the bill also contains provisions to increase FHA's multifamily loan limits for elevator buildings and in extremely high cost areas.”

Story added, ""We hope the Senate will be empowered by the House action and will consider similar legislation quickly. When it does, we hope it will adopt the House language on multifamily loan limits and that senators will work to keep a careful balance that will allow FHA to address lender enforcement and loan indemnification without discouraging responsible lenders from participating in the FHA program.""