The US House of Representatives approved H.R. 5072, the FHA Reform Act of 2010 by a vote of 406-4 on Thursday. The bill would nearly triple the cap on annual premiums the FHA can charge borrowers and give the agency more powers to protect itself from fraudulent or poorly-underwritten loans says the Wall Street Journal.
Backers said the bill would help the FHA rebuild its reserves without harming the agency’s mission of backing low down payment loans for middle income and poor borrowers.
The measures in the bill will reduce the risk of the FHA insurance fund “while protecting the interests of low-income home buyers,” the White House said this week in an official statement of administration policy ahead of the debate on the bill. No lawmaker has introduced companion legislation in the Senate yet.
Mortgage defaults have eaten through the FHA’s capital reserves as the agency has swelled to prop up the mortgage market in the wake of the housing bust. The losses have fanned fears the Depression-era agency will require a taxpayer bailout for the first time. Last fall, the FHA reported its reserves had fallen to $3.6 billion as of Sept. 30, or just 0.53% of the $685 billion of FHA loans in force at that time.
The House-passed legislation would raise the cap on the annual premiums the FHA charges borrowers to 1.50% from 0.55%. It would also beef up the agency’s powers to weed out lenders that are costing the agency too much in claims and make it easier for the FHA to shield its insurance fund from losses on loans that were underwritten fraudulently or that violated FHA standards.
The FHA pushed for the legislation, which it says will allow it to replenish its reserves faster. The agency estimates the proposed changes will generate about $300 million a month in additional positive receipts, while costing the average FHA borrower $42 extra in monthly premiums.