The Senate Committee on Banking, Housing and Urban Affairs approved last week the FHA Solvency Act of 2013 in a 21-1 vote.
The bill included a manager’s amendment incorporating proposals from committee members of both parties to further bolster the FHA’s finances and ensure that qualified borrowers have continued access to credit. The FHA announced earlier this year that it would need close to $1 billion in taxpayer bailout funds to remain viable.
“This bill will give the Federal Housing Administration the tools it needs to get back on track, so it can continue to help qualified borrowers realize the dream of homeownership and provide stability to the housing market in times of stress,” Sen. Tim Johnson (D-S.D), the chairman of the Senate Banking Committee and sponsor of the bill, said. “This was a bipartisan effort from start to finish. The reforms we approved today are the product of a lot of hard work from members on both sides of the aisle, and I appreciate the spirit of bipartisanship and open debate that my colleagues on the Committee demonstrated throughout the amendment process.”
Since its creation in 1934, the FHA has helped to stabilize the mortgage market and ensure that low- to moderate-income homebuyers have access to mortgage credit. During the financial crisis, the agency served as a critical source of credit, saving an estimated three million jobs and $500 billion. FHA loans, however, suffered heavy losses, and its balance sheets remain at risk without congressional intervention.
Specifically, the legislation would raise the capital reserve ratio minimum for the Mutual Mortgage Insurance Fund to three percent, and if the capital ratio does not meet certain targets as it builds up to the new minimum, the Department of Housing and Urban development would be required to take immediate action to address the shortfall.
The bill would also require minimum annual mortgage insurance premiums that will be reevaluated each year to ensure that they cover loans’ expected risk and maintain the capital reserve ration. HUD would also be required to evaluate and revise underwriting standards using criteria similar to that established by the CFPB in its qualified mortgage/ability-to-repay rule.
Additionally, the bill would require HUD to consolidate lending and servicing guidelines regarding the processes that apply to FHA-insured loans. HUD would also be given new tools to hold lenders accountable, and its secretary would have greater operational and regulatory flexibility.