American Banker: House Passes Bill Allowing FHA to Raise Premiums
The House overwhelmingly approved a bill Thursday aimed at helping the Federal Housing Administration rebuild its capital reserves.
The bill, which passed 406 to 4, will allow the FHA to raise annual premiums on borrowers, helping to bolster its Mutual Mortgage Insurance Fund. The fund has seen loan losses deplete its capital ratio to 0.53%, well below its statutory minimum of 2%.
Higher premiums would bolster the agency's ability to draw more capital into its reserves and strengthen its diminished fund.
Lawmakers said the bill will put the FHA on stronger footing, ensuring it can fulfill its growing role as a source of mortgages.
"As the private market has contracted, FHA has stepped into the void and injected much-needed credit into our mortgage system. Increasingly, it is the only option available for American homebuyers with less than a 20% down payment," said Rep. Maxine Waters, D-Calif., who chairs the Financial Services Committee's housing subcommittee and authored the bill.
Under the bill, the FHA could increase its annual premium as high as 1.55% from the current cap of 0.55%. The FHA said it will not raise premiums to the new cap immediately. Instead, it said it will charge an annual premium of 0.90% for borrowers who make a down payment of 5% or less, and 0.85% for borrowers who put down more than that.
The FHA estimates the changes will generate an additional $4.1 billion for fiscal 2011.
Republican efforts to amend the bill, including establishing a maximum loan limit of $500,000 on single-family units, increasing down-payment requirements, and capping market share at 10%, were all defeated.
The administration strongly opposed those amendments, saying they would hurt the housing market and economic recovery and hinder the FHA's mission to provide affordable housing to low-income borrowers.
Rep. Barney Frank, D-Mass., chairman of the House Financial Services Committee, spoke against the amendment proposed by New Jersey Republican Rep. Scott Garrett. Raising down-payment requirements from 3.5% to 5% "would undercut the ability of people who are capable of paying their mortgages from getting mortgage loans," Frank said.
Frank also came to the FHA's defense, saying it has applied stricter underwriting standards and has made certain reforms partly at the urging of Congress. "A major cause of the Fannie and Freddie problem is they were pressured into buying subprime mortgages that never should have been given in the first place. That's not the FHA," Frank said.
Waters agreed. "FHA has already taken steps to increase its lender enforcement activities, and this bill empowers the agency to root out the bad actors while reserving the program for the lenders that follow the rules," she said.
Some amendments that were backed by the administration passed, including one proposed by Rep. Melissa Bean, D-Ill., that would require the Department of Housing and Urban Development to submit an annual report to Congress on proposed changes to down-payment requirements under the FHA program and give the HUD secretary the authority to change the down-payment requirements if necessary.
The bill would also force the FHA to lower the up-front premium, which it has increased during the past year as losses have multiplied. Under the legislation, the up-front premium could be no higher than 1%, down from a previous cap of 2.25%.
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