Senator David Vitter, R-La., late this week introduced legislation that would pressure the Federal Housing Administration to recapitalize its single-family mortgage insurance fund in two years.
FHA is supposed to maintain a statutory minimum capital ratio of 2%, but the reserve, at last reading, stands at just 0.24% of pools covered.
“The FHA has been violating the congressionally mandated ratio of capital since 2009,” Sen. Vitter said. “I certainly don't want the FHA to ask Congress or the Treasury Department for a bailout, which I'm afraid, could happen sooner rather than later,” he added.
Vitter's bill directs FHA to increase insurance premiums, tighten underwriting standards and raise downpayment requirements to meet the 2-year deadline.
If that fails, FHA must raise its annual premium up to the maximum allowable and impose an additional risk-based insurance premium on loans with downpayments of 5% or less.
FHA supporters are concerned such tightening would reduce the availability of mortgage credit and increase downward pressures on home prices.
Under current law, FHA can borrow from Treasury Department if necessary to meet its obligations. Sen. Vitter's bill would revoke that authority so that Treasury could not conduct a “secret bailout” of the FHA insurance fund.
