FHA Reform Act Passes House Financial Services Committee

The House Financial Services Committee approved the FHA Reform Act of 2010 (H.R. 5072) 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, said yesterday she drafted the bill in response to recent events that caused FHA’s reserves to fall below the two percent level required in law.

According to a statement from the committee, 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

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“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 creates a new Deputy Assistant Secretary at FHA for Risk Management and Regulatory Affairs and provides the agency with enhanced authority to terminate lenders’ approval to originate or underwrite loans backed by FHA insurance when it finds evidence of fraud or noncompliance.

In addition, the bill 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, and providing FHA with the ability to contract out for additional credit risk analysis.

While the bill doesn’t address FHA’s reverse mortgage program specifically, the Act should help to improve the oversight and data reporting elements of the HECM program.

The bill still needs approval by the full House and the senate before it’s signed into law. A Senate Version has not yet been introduced.