JUL 11, 2013 12:33pm ET

House Reform Proposal Seeks to Rightsize FHA

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House Financial Services Committee chairman Jeb Hensarling, R-Texas, is circulating an outline of his housing finance reform bill that will include provisions to reduce FHA’s market share.

Hensarling will leave the Federal Housing Administration single-family program open to first-time homebuyers regardless of their income.

However, his bill—the Protecting American Taxpayers and Homeowners Act—raises the downpayment requirement and places income limits on other borrowers. FHA has never had an income limit.

The PATH Act would raise the downpayment requirement for non-first-time borrowers from 3.5% to 5%. But these repeat borrowers would not be eligible for a FHA-insured loan if their income exceeds 115% of the area median income. In high-cost areas the income is 150% of AMI.

It is understood that some committee Republicans believe the income limits are too restrictive.

Senate Banking Committee chairman Tim Johnson, D-S.D., is expected to release his FHA reform bill later today.

The Senate bill is expected to largely mirror a FHA reform bill the House of Representatives passed last year by a 402-7 vote. The House bill authorized FHA to seek indemnification for loan losses from all FHA-approved lenders. Currently, FHA can only seek indemnification from its largest lenders, which originate 70% of FHA loans.

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