House Prepares to Vote on FHA Reform Bill

The House of Representatives is expected to vote on, and pass legislation this week giving the Federal Housing Administration more flexibility in adjusting mortgage insurance premiums and tools to rebuild its capital reserves. The FHA reform bill (H.R. 5072) also strengthens the agency's hand in getting lenders to indemnify the agency against bad loans and to terminate lenders with excessive early defaults. The House Financial Services Committee approved the bill by a voice vote in April after rejecting (by a 52-12 vote) an amendment by Rep. Scott Garrett, R-N.J., to increase the FHA's 3.5% minimum downpayment to 5%. Getting the FHA reform bill through the Senate could be tougher. Sen. Richard Shelby, R-Ala., has tried several times to increase the FHA minimum downpayment to 5%. He likely will try again. The Senate is not expected to take up the FHA reform bill until after the July 4th recess, according to sources. If passed in its current form, H.R. 5072 would allow FHA to reduce its 2.25% upfront premium to 1% and raise its 55 basis point annual premium to 85 bps on single-family mortgages with loan-to-value ratios up to 95% and to 90 bps for LTVs above 95%. FHA officials estimate this change would increase the agency's reserve fund by $300 million a month.