Bill Targets FHA Delinquencies, Warehouse Credit
The Department of Housing and Urban Development (HUD) secretary could be required to conduct an ongoing review of new mortgages that become 60 or more days delinquent within the first 90 days of origination if a Federal Housing Administration (FHA) reform bill introduced last week is passed. The 21 Century FHA Housing Act of 2009 — HR 3146 — aims to reform HUD and FHA processes to root out lenders with high incidences of delinquencies. The bill's authors also note the substantial presence of warehouse lending in mortgage originations -- which provides short-term lines of credit to non-depository lenders to fund mortgage loans that are eventually sold on the secondary market to Fannie Mae (FNM), Freddie Mac (FRE) and Ginnie Mae. As much as 40% of all US mortgages and 55% of FHA loans are originated through warehouse lines of credit, the bill's authors found. But warehouse lending has been in decline, falling as much as 90% since 2006 to a range of $20bn to $25bn and leaving a crucial funding gap of potentially hundreds of billions of dollars, the bill says. "[U]nless Federal regulators promptly address the issue, borrowers seeking to take advantage of today's low interest rates will face rising costs and reduced credit access, which could undermine the housing market recovery," the Act reads, in part. The bill calls on HUD, the US Treasury Department and the Federal Housing Finance Agency to provide financial support and assistance through recent economic recovery legislation to support the flow of credit and lending by warehouse lenders to mortgage lenders. It also calls for the addition of 90 new HUD employees to conduct FHA process reviews on behalf of the secretary. The bill was introduced by New Jersey Democrat John Adler, and cosponsored by Connecticut Democrat James Himes and Republicans Chris Lee of New York and Leonard Lance of New Jersey. It awaits action in the House Financial Services Committee. Write to Austin Kilgore. Diana Golobay contributed to this report.