The leaders of the Senate Banking Committee released on Monday a “discussion draft” of the Federal Housing Administration Solvency Act, a proposal that is designed to ensure stability in the mortgage market and protect taxpayers.
The legislation, introduced by committee Chairman Tim Johnson and Ranking Member Mike Crapo, would raise the Mutual Mortgage Insurance Fund’s minimum capital reserve ratio to three percent.
Annual mortgage insurance premiums would also be required to improve the long-term solvency of the FHA program, and the levels will be reevaluated every year to ensure premiums maintain the required capital reserve ratio and cover expected risk on loans.
Additionally, the Department of Housing and Urban Development would be required to evaluate and, if necessary, revise underwriting standards using criteria similar to that in the CFPB’s qualified mortgage rule.
HUD would also be required to consolidate requirement guidelines, policies and procedures that apply to loans insured by the FHA to clarify standards and reduce the regulatory burden. The housing agency would also receive new tools to hold lenders accountable for fraudulent or bad practices, and the HUD secretary would be given greater operational and regulatory flexibility.
“Chairman Johnson and I have crafted a bill that includes bipartisan, effective reforms that put FHA on a path toward improving its unsustainable financial condition,” Crapo said. “Many of these reforms include priorities from our colleagues on the Committee, and I am eager to work with them to return the FHA to a strong, self-sustaining insurance program that can remain a viable option for future homeowners.”
The FHA, established in 1934, helped stabilize the mortgage market by ensuring low- and moderate-income first-time homebuyers have access to credit. During the 2008 financial crisis, the agency provided credit and saved an estimated three million jobs and $500 billion in economic output. FHA loans issued at the height of the crisis, however, suffered heavy losses, and the agency’s balance sheets remain unstable.