House approves way for FHA to go after mortgage lenders
The House of Representatives passed a bill Tuesday 402-7 allowing the Federal Housing Administration to recoup losses from mortgage lenders for fraudulent loans it guarantees.
Rep. Judy Biggert, R-Ill., introduced the FHA Emergency Fiscal Solvency Act in March to shore up an emergency insurance fund on the brink of an unprecedented bailout. A $1 billion settlement with Bank of America (BAC) and an insurance premium raise in April helped the fund recover since.
The bill also allows the FHA to charge up to 2.05% for its annual mortgage premium, up from a current 1.55% maximum. The bill sets a minimum 0.55% premium for the yearly payment as well.
The Department of Housing and Urban Development will also be required to report on "early period delinquencies" under the bill.
For now, it only reports how many mortgages are 90 days or more past due. In July, roughly 725,600 FHA loans were seriously delinquent up 21% from the same point last year.
FHA lenders, however, will face more scrutiny under the law if it is enacted. The government could recoup losses on insurance claims paid if it determines a lender knew or even should have known about a violation of FHA underwriting standards. The bill also allows HUD to prohibit lenders from originating future FHA loans based on delinquency rates in either certain geographies or nationally.
HUD would be required to establish an appeals process under the bill and to report the number of improperly underwritten loans it finds, as well the effect these mortgages have on the insurance fund.
As of November, the FHA emergency capital fund fell to 0.24% of insurance in force, down from the Congress-mandated 2%.
"FHA’s declining financial position could cost taxpayers millions, and it threatens the stability of our housing market," Biggert said in a statement. "We cannot afford another Fannie- and Freddie-style bailout, and mortgage holders don’t need any more market uncertainty driving down their home values."
The bill, which has support from FHA Acting Commissioner Carol Galante, now moves on to the Senate.
"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," Galante said in a statement. "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."