Committee Approves FHA Reform Act
Today, the House Financial Services Committee approved legislation to ensure that the Federal Housing Administration (FHA) remains viable and continues its mission of insuring mortgage loans.
Congresswoman Maxine Waters (D-CA), Chairwoman of the Housing and Community Opportunity Subcommittee, drafted the FHA Reform Act of 2010 (H.R. 5072) in response to recent events that caused FHA’s reserves to fall below the two percent level required in law. The Act will empower FHA to improve its financial position by allowing the agency to adjust its premium structure for new borrowers, while still providing affordable mortgage insurance to the individuals FHA is intended to serve including low-income and minority borrowers and individuals in traditionally underserved areas.
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 the private market has pulled back from the mortgage market.
“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,” Congresswoman Waters said. “This legislation makes essential reforms to strengthen FHA’s finances.”
H.R. 5072 also provides FHA with enhanced authority to terminate lenders’ approval to originate or underwrite loans backed by FHA insurance when FHA finds evidence of fraud or noncompliance. Such 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, Congresswoman Waters’ 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 requiring 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.
Congresswoman Waters drafted the legislation after conducting three hearings on FHA in the last six months.
H.R. 5072 has the support of a diverse group of organizations including the National Urban League, the National Council of La Raza, the National Community Reinvestment Coalition, the Mortgage Bankers Association, the National Association of Realtors and the National Association of Home Builders.