House Overwhelmingly Passes FHA Solvency Bill, Asks for Plan

The House of Representatives Tuesday afternoon passed a bill that requires the Federal Housing Administration to submit a plan to Congress on how it intends to avert a bailout of its financially strapped mortgage insurance fund.

The bill also gives the federal mortgage insurance agency enhanced powers to expel lenders from the FHA single-family program and to require indemnification for losses on bad loans.

The House approved the bill Tuesday afternoon by a 402-7 vote. The bill (H.R. 4264) now goes to the Senate for further action.

FHA lending accounts for about 25% of all new loans being funded today and could gain share in the years ahead if Fannie Mae and Freddie Mac are significantly downsized. During the height of the subprime boom FHA had a 3% share.

The FHA mortgage insurance fund clung to a slim capital ratio of 0.24% in fiscal year 2011, according to an annual actuarial report conducted by independent auditors and released last November.

FHA has $2.5 billion in capital backing a $1-trillion-plus portfolio of insured single-family loans. FHA also had $31.2 billion of capital reserves for expected loan losses.

The actuarial review is conducted once a year. The FHA solvency bill, sponsored by Rep. Judy Biggert, R-Ill., requires the agency to submit semi-annual actuarial reports to Congress.

The House Financial Services Committee approved H.R. 4264 in June.

At the committee markup in June, Rep. Biggert said, "FHA's cash reserves are down to dangerous levels and we can't affordable another Fannie- and Freddie-style bailout."