Bill Giving FHA More Flexibility in MIP Adjustments Moves Ahead

The House Financial Services Committee has approved a bill that will give the Federal Housing Administration more flexibility in adjusting its mortgage insurance premiums. The committee passed the bill (H.R. 5072) on a voice vote after amendments by Rep. Scott Garrett, R-N.J., to raise the FHA downpayment requirement, prohibit financing of upfront premiums and limit the FHA guarantee to 95% of the loan amount were voted down. Garrett's amendment to raise the FHA downpayment to 5% from the current 3.5% minimum failed on a 52-12 vote. FHA recently increased its upfront premium 50 basis points to 2.25% of the loan amount to help recapitalize the FHA insurance fund. But the agency would prefer to raise its 55 basis point annual premium instead. If passed by the Senate, H.R. 5072 would allow FHA to reduce the upfront premium to 1% and raise the annual premium to 90 bps on single-family mortgages with loan-to-value ratios above 95%. Raising the annual premium would be "safer for homeowners and better for the health of the FHA fund," according to Housing and Urban Development secretary Shaun Donovan. The FHA reform bill also strengthens FHA enforcement powers to hold lenders accountable for bad loans. "Further, the bill provides that a lender's improper or imprudent activities at the regional level may now yield enforcement actions that restrict their nationwide activities," the HUD secretary said.