House Committee Approves Bill to Tighten FHA Approval Standards
The House Financial Services Committee approved a bill to increase capital reserves in the Federal Housing Administration (FHA) and reduce risks to its insurance fund. The bill will now move to the House floor for debate. The bill would amend the National Housing Act by increasing the cap of annual premium payments collected by the FHA from 0.50% to 1.5%. It would also hold approved lenders accountable for the FHA loans they write. Under the new bill, if the FHA pays out a claim on a mortgage it finds did not meet its underwriting standards or detects fraud involved with the origination of the loan, it could require that lender to pay reparations for the loss to the insurance fund. The bill also widens the authority of the FHA to terminate its approval of lenders to write its insured mortgages. If the FHA finds a lender has an excessive rate of early defaults and claims, it could remove the lender approval for any area in the country not just within its region. As far as who determines the risk to the insurance fund, the bill also establishes a new position, a Deputy Assistant Secretary for Risk Management and Regulatory Affairs, who would be responsible for ensuring the performance of mortgages insured by the FHA. “The FHA is playing a vital role in the current housing market. We must therefore remain vigilant in making sure that our reserves are strengthened and that our lenders meet the highest standards of conduct,” said Shaun Donovan, secretary of the Department of Housing and Urban Development (HUD). “This legislation puts FHA on firmer footing to achieve its dual mission of helping to stabilize the housing market during tough times and providing affordable homeownership options to underserved American families while protecting the American taxpayer by bolstering the strength of the fund." Not everyone is as optimistic about the new bill. The law firm K&L Gates said the bill and new regulations increasing the minimum net worth of FHA-approved lenders to $1m would “wreak havoc” on small business trying to write these loans. Write to Jon Prior.