Senate Panel Approves FHA Reform Bill

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The Senate Banking Committee approved a bipartisan Federal Housing Administration reform bill by a 21-1 vote Wednesday.

The bill (S. 1376) is designed to get the FHA insurance fund back on stable financial footing and provide FHA officials will more authority to police lenders and reduce losses.

One amendment adopted by the committee members at Wednesday’s markup session would allow FHA to force servicers with poor loss mitigation results to employ a subservicer that specializes in helping troubled borrowers.

The amendment sponsored by Sen. Jack Reed, D-R.I., requires FHA to establish performance standards that would warrant such a transfer of servicing, as well as a limited appeals process.

FHA commissioner Carol Galante has been pressing for this authority. And she recently clarified that FHA is not seeking to transfer the ownership of the servicing rights.

“Let me be clear, we are not talking about transferring the actual servicing rights,” Galante told the banking committee members at a July 24 hearing.

The Reed amendment says FHA “may require a servicer to enter into a subservicing agreement with a specialty servicer.” That agreement would allow the subservicer to take over the loan modification and other foreclosure prevention efforts for a pool of loans.

Separately, the House Financial Services Committee has taken a more extreme approach to FHA reform. The House committee recently passed a FHA reform bill that would restructure the FHA program and reduce its market share. The Protecting American Taxpayers Act and Homeowners Act also calls for winding down Fannie Mae and Freddie Mac and liquidating the GSEs at the end of five years. The House committee approved the PATH Act by a 30-27 vote.

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