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Senate-HUD Negotiations Could Lead to FHA Changes

DEC 17, 2012 5:05pm ET

Department of Housing and Urban Development officials are working with a key Republican senator on tightening Federal Housing Administration loan policies to reduce loan losses, according to sources.

As part of such a deal, HUD officials want to ensure that Carol Galante will finally be confirmed by the Senate to be the FHA commissioner. She has served as the acting commissioner since April 2011.

Last week, Sen. Bob Corker, R-Tenn., spelled out four changes to the FHA single-family and reverse mortgage programs, which set the starting point for negotiations.

Corker wants to impose a minimum FICO score of 620 on FHA single-family loans, stop lump-sum payouts on FHA-insured reverse mortgages for two years and require a 20% downpayment requirement on borrowers who have gone through a foreclosure in the past seven years.

Sources indicate HUD could possibly negotiate an agreement with Corker to take administrative action on some of these issues. But it would take legislation to lower the FHA maximum loan limit to $625,500, which Corker also wants.

If an agreement with Corker can be reached, it might clear the way for the Senate to approve a House-passed FHA reform bill. Senate Banking Committee chairman Tim Johnson, D-S.D., signaled last week that he wants to pass the House bill by unanimous consent. But observers say the chances of the Senate acting on the bill are still unclear.

The House-passed FHA reform bill (H.R. 4264) would give HUD more powers to police lenders and require indemnification for bad loans as a way to reduce FHA loan losses. It cleared the House in September by a 407- 7 vote.