Let the FHA Reform Act Debate Begin

A bill is making its way through Congress that will have a significant effect on the Federal Housing Administration’s mortgage insurance program and as a result, the reverse mortgage program. Sponsored by Representative Maxine Waters (D-CA), H.R. 5072, the FHA Reform Act of 2010 would give FHA the authority to increase the maximum mortgage insurance payments and make changing them discretionary instead of mandatory.

Specifically, H.R. 5072 would raise annual premiums from 0.55 percent to 1.55 percent and aims to provide more oversight to FHA approved lenders.

“Raising premiums is never desirable, but if done prudently, and if coupled with decreases in the upfront premium, this step has the potential to strengthen FHA’s books while actually lowering closing costs for many borrowers,” said John Courson, President of the Mortgage Bankers Association. “MBA also believes the bill’s sections dealing with lender enforcement and loan indemnification address important areas, but would caution that the final legislation needs to ensure that responsible lenders are not discouraged from participating in the FHA program.”

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The bill would also subject all approved lenders to indemnification provisions for claims-related losses on certain mortgages. All lenders could potentially be required to indemnify the FHA for claims-related losses on mortgages determined to have been underwritten in violation of FHA standards or in connection with fraud or misrepresentation.

Additionally, the bill would create a permanent position of Deputy Assistant Secretary for Risk Management and Regulatory Affairs at FHA and permit FHA to suspend a lender nationwide on the basis of the performance of one of its regional branches.

“H.R. 5072 represents important reforms that will improve FHA’s fiscal health and allow it to continue providing homeownership opportunities for millions of American families,” Courson said. “We urge the House to pass this bipartisan legislation.”

H.R. 5072 was presented to the House in a Rules Committee Regulation on Tuesday, ordering that the bill be considered with up to 1 hour of debate. The bill is up for debate today at 10am Eastern Time on Thursday, with a slate of 13 Amendments on the slate to be considered.

At the moment, none of the amendments are related to reverse mortgages, but he bill could change how reverse mortgage lenders operate.

Update: The bill easily passed the House on Thursday.

Written by Reva Minkoff

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