The Federal Housing Administration (FHA) Fiscal Solvency Act of 2012 has been passed by the full House of Representatives by a vote of 402-7. The Fiscal Solvency Act includes provisions to strengthen and broaden the ability of the U.S. Department of Housing & Urban Development (HUD) to avoid or recoup losses for loans originated or underwritten by a mortgage lender which did not comply with FHA guidelines, as well as expand HUD’s ability to terminate the authority of poorly performing lenders to participate in FHA programs.
“We are pleased that the bill passed by the House includes provisions that will allow FHA to continue its efforts to strengthen its enforcement capabilities in order to protect its insurance fund and American taxpayers," said Acting FHA Commissioner Carol Galante. "We look forward to continuing to work with both chambers to enact final legislation to provide FHA with the tools it needs to build on the vital reforms implemented by this Administration.”
U.S. Rep. Judy Biggert (R-IL) received approval of the House Committee on Financial Services in late March of the Fiscal Solvency Act of 2012, a measure she authored to prevent the FHA from edging closer to insolvency. Rep. Biggert, who chairs the Subcommittee on Insurance, Housing, and Community Opportunity, introduced HR 4264 after her subcommittee approved an initial draft on Feb. 7, 2012.
“FHA’s declining financial position could cost taxpayers millions, and it threatens the stability of our housing market,” said Rep. Biggert. “We cannot afford another Fannie- and Freddie-style bailout, and mortgage holders don’t need any more market uncertainty driving down their home values. This legislation will give HUD Secretary Donovan emergency tools to protect the solvency of the FHA. It allows the FHA to enforce stronger loan standards and crack down on bad lenders."
The FHA insures more than $1 trillion worth of mortgages on more than seven million loans. As of November 2011, the FHA’s capital reserve fund was estimated at 0.24 percent—far short of the two percent required by statute. Due to deteriorating financial conditions, the Administration’s fiscal year 2013 budget projects that the FHA may require $688 million in taxpayer assistance to shore up its financial position. In order to mitigate financial risk within the FHA, HR 4264 would:
►Give HUD the authority to charge up to a maximum premium of 2.05 percent annually on mortgage insurance (MI);
►Establish a minimum annual premium for MI of 0.55 percent;
►Bar unscrupulous lenders from participating in the program;
►Require repayment of losses to FHA by lenders who committed fraud;
►Improve the FHA’s internal financial controls, transparency, and disclosure requirements; and
►Require the Government Accountability Office (GAO) to conduct an independent safety and soundness review of the FHA.
“We welcome today’s announcement as a huge step that helps bring more certainty for lenders as they attempt to offer affordable mortgage credit to more qualified borrowers and advance the housing recovery," said David H. Stevens, president and CEO of the Mortgage Bankers Association (MBA). "We have been working with Acting Director DeMarco on this very issue for several years, and the plan outlined today should give lenders the confidence they need to help more qualified borrowers."
