The bill (S. 1376) approved by the committee last July requires the FHA mutual mortgage insurance fund to reach a capital ratio of 3% in 10 years. The FHA mutual mortgage insurance fund currently has a negative 0.11% capital ratio.
The bill also requires FHA to impose a 10 basis point surcharge if the fund does not reach an interim capital ratio of 1.25% in fiscal year 2016.
The Congressional Budget Office estimates FHA will charge borrowers sufficient insurance premiums to exceed the 1.25% in the next couple of years. “So we expect that FHA would not impose a 10 basis point surcharge in 2016,” CBO says.
However, reaching a 3% capital ratio will be tougher. “CBO expects that FHA would probably increase its initial and annual insurance premiums beginning in 2018 in order to achieve a 3% capital ratio in the MMI fund by 2023,” CBO says.
Due to these premium increases, the FHA reform bill would decrease government spending by $512 million.
Senate Banking Committee chairman Tim Johnson, D-S.D., and Sen. Mike Crapo, R-Idaho, co-sponsored the FHA reform bill.
“The Congressional Budget Office’s estimates show that we can strengthen the FHA while decreasing our federal deficit,” Crapo says.
“Congress should move as soon as possible to comprehensively reform the FHA and our country’s broader housing finance system.”