House Bill Aims to Save FHA Mortgage Insurance Fund in “Crisis”

A House subcommittee approved a bill Tuesday to help the Federal Housing Administration “shore up” the health of the Federal Housing Administration’s mortgage insurance fund.

The FHA Emergency Fiscal Solvency Act aims to strengthen the fund, which insures all FHA loans including Home Equity Conversion Mortgages. An independent audit of the fund found in November revealed that its capital reserves were well below the mandated level of 2%.

“The FHA’s cash reserves are down to dangerous levels, and taxpayers cannot afford another Fannie- and Freddie-style bailout,” said Rep. Judy Biggert (R-Ill.). “This Administration needs to enforce stronger standards and create room for the private sector to replace taxpayers as the primary source of funding. The FHA is facing an urgent fiscal crisis, and this proposal gives HUD Secretary Donovan emergency tools to wind down the risk before it’s too late.”

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The bill, which was approved by the Insurance, Housing and Community Opportunity Subcommittee Tuesday, establishes minimum annual premiums for mortgage insurance, bars unscrupulous lenders from participating in the program, requires repayment of losses to FHA by lenders who have committed fraud and improves the FHA’s internal financial controls, transparency and disclosure requirements.

The FHA insures more than $1 trillion in mortgages on more than 7 million loans.

Written by Elizabeth Ecker

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  • This is not a criticism of Elizabeth but it is a problem with Congress.  Access to bills should be immediate since something is in print by the time a committee reports on a bill.  This is part of the lack of transparency in Congress.

    A bill of this nature could have ramifications to our program either for the better or the worse.  There is no way to tell at this point.

    The good thing is that RMD is reporting on it early in the process.  At 2% needed reserves and $1 trillion insured, the bill could come with a price tag of somewhere around $20 billion.  

    Per New View Advisors, just the HECM portion of the fund could need an infusion of over $5.4 billion.  If HUD was using their way of estimating the reserves would already be negative due just to the difference between the HUD HECM estimated losses and the New View estimate.

    If this bill will shore up FHA then FHA needs to reconsider their estimates to see if their estimates regarding losses need adjustment.  Better to get it right the first time than go hat in hand asking for significantly more later. 

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