GOP Lawmakers Call for FHA Reforms

The Federal Housing Administration’s admission that it faces a budget shortfall for fiscal year 2013 and must take a $1.7 billion draw from the U.S. Treasury is increasing pressure within Congress to pass a FHA reform bill.

“There is broad consensus that the FHA must be reformed: this draw from Treasury will only serve to further solidify this consensus,” said Edward Mills, a policy analyst with FBR Capital Markets.

The House and Senate banking committees passed FHA reform measures this summer. But they are very different bills. The Senate version, which enjoys bipartisan support, mainly strengthens and clarifies FHA authority to police lenders and manage the FHA mortgage insurance fund.

Senate Banking Committee chairman Tim Johnson, D-S.D., and ranking member Mike Crapo, R-Idaho, co-sponsored the FHA bill. Crapo said Friday the Treasury draw “reinforces the need for Congress to pass FHA and broader housing finance reform.”

Meanwhile, House Financial Services Committee chairman Jeb Hensarling, R-Texas, warned that FHA is headed toward financial disaster.

“Unless Congress enacts sustainable housing finance reform, its possible taxpayers will be forced to write blank bailout checks to the FHA indefinitely,” the Texas congressman said Friday.

The House FHA reform bill would restrict FHA loans to first-time homebuyers and low- and moderate-income borrowers. It also raises the FHA downpayment requirement to 5%.

But the House bill, also known as the PATH (Protecting American Taxpayers and Homeowners) Act also reduces the 100% FHA mortgage insurance coverage over five years to 50% of the loan amount.

Despite the sense of urgency, the FBR Capital Markets analyst says FHA reform will probably be sidelined until next year.

The debate over Fannie Mae and Freddie Mac has “eclipsed the FHA reform debate,” Mills said.