U.S. Senate FHA Solvency Measure Would Require Premium Increases

A U.S. Senate bill would set a floor on premiums charged by the Federal Housing Administration and require the government mortgage insurer to hold more money in reserve, according to two people briefed on the legislation.

Leaders of the Senate Banking Committee said they plan to introduce the measure next week. Lawmakers in both the Senate and the House of Representatives have vowed to address the finances of the FHA, which faces a projected shortfall of nearly $1 billion in its insurance fund in the current fiscal year. Defaults on loans the government mortgage insurer backed as the housing bubble burst depleted its reserve account.

“After months of hard work, we have reached bipartisan agreement on a path forward to give the FHA the tools it needs to get back on stable footing,” Banking Committee Chairman Tim Johnson, a South Dakota Democrat, and Mike Crapo of Idaho, the committee’s top Republican, said in a statement yesterday.

The bill would also increase the cap on premiums the agency charges to borrowers to insure their mortgages and require annual evaluations of those rates. It would give the FHA more authority to go after lenders that break its rules, and it would give the agency more power to require lenders to absorb losses on improperly underwritten loans. It would penalize the FHA if it doesn’t keep enough money in its reserve account, the people, who asked not to be named because the bill hasn’t been filed.

The measures in the bill are intended to ensure that FHA has sufficient cash on hand to cover any future projected losses without relying on taxpayer support.

Less Restrictive

Sean Oblack, a spokesman for the Banking Committee, said he would not comment beyond the statement released by Senators Johnson and Crapo yesterday.

The measure doesn’t go as far in restricting FHA’s footprint as a bill introduced in the House Thursday by Texas Republican Jeb Hensarling, chairman of the Financial Services Committee.

Hensarling’s bill also would overhaul the FHA, focusing it on first-time borrowers and limiting its loans to 115 percent of an area’s median home price. The measure also would increase the entity’s down payment requirement for non-first-time buyers to 5 percent from 3.5 percent.

To contact the reporters on this story: Clea Benson in Washington at cbenson20@bloomberg.net Cheyenne Hopkins at Chopkins19@bloomberg.net;

To contact the editor responsible for this story: Maura Reynolds at mreynolds34@bloomberg.net

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