Frank Favors Cross-Subsidies for Subprime MI

As part of an FHA reform bill, House Financial Services Committee Chairman Barney Frank, D-Mass., wants to cross-subsidize mortgage insurance premiums for subprime borrowers by tapping into higher revenues generated by changes to the FHA reverse mortgage program.The chairman said he plans to take up FHA reform soon that also eliminates a cap on Home Equity Conversion Mortgage originations and raises the HECM loan limit. "We will take a piece of that money, we hope, to subsidize higher loan losses on less creditworthy borrowers," Rep. Frank told the National Association of Mortgage Brokers Legislative Conference. (The Bush administration wants the Federal Housing Administration to charge risk-based premiums under its reform proposal.) The chairman also told the brokers that he wants to make it easier for them to originate FHA loans. But in a separate predatory lending bill, he said he will look at yield-spread premiums to make sure consumers know what they are being charged.