FHA Seeks Wider Authority to Push Bad Mortgages Back to Lenders

Feb. 16 (Bloomberg) -- Congress should give the Federal Housing Administration more power to adjust fees and recoup losses on bad loans, Commissioner David Stevens said.

In testimony prepared for a hearing of the House Financial Services Committee today, Stevens said the FHA currently has authority to go after some large-volume lenders to recoup losses on loans that were fraudulently or improperly originated. That power should be extended to all mortgages the agency insures, Stevens said.

The FHA, which now insures more than a third of new mortgages, won congressional approval last year to raise premiums as its mortgage insurance reserves fell to their lowest level on record. The agency said Feb. 14 that it would increase annual premiums by 25 basis points beginning April 18.

Housing and Urban Development Secretary Shaun Donovan “and I remain committed to comprehensive FHA reform legislation that enhances FHA’s lender enforcement capabilities and risk management efforts,” Stevens said. “And we hope Congress will pass comprehensive FHA legislation as quickly as possible.”

Loans the agency insured before 2009 account for 70 percent of its projected losses on single-family mortgages. The quality of loans the FHA is now insuring has improved, Stevens said. FHA’s seasonally adjusted 90-day delinquency rate was 5.8 percent in December, compared with 7.45 percent a year earlier, he said.

To reduce its footprint in the mortgage market, FHA may consider increasing the size of the down payments it requires on all the loans it insures, Stevens said. The agency in October raised the size of down payments it requires for borrowers with weak credit.

“In considering how to apply such options, FHA will continue to balance the need to prudently manage the risk to FHA and the borrower with its efforts to ensure access to affordable loans for lower and middle income Americans,” he said.

To contact the reporter on this story: Clea Benson in Washington at Cbenson20@bloomberg.net.

To contact the editor responsible for this story: Lawrence Roberts at lroberts13@bloomberg.net.