House lawmakers overcame election-year gridlock on Tuesday to punt their version of a bill that would shore up the Federal Housing Administration, whose embattled Mutual Mortgage Insurance Fund falls short of the capital required by law.
The lower chamber passed the Federal Housing Administration Fiscal Solvency Act by a sweeping vote of 402 -7.
If it becomes law, the bill would strengthen HUD’s ability to do away with lenders that fail important lending criteria and allow the federal agency to avoid losses on defaulted loans underwritten by non-compliant lenders.
The law would allow HUD to charge up to 2.05 percent in annual insurance premiums, establish an annual fee for lenders at 0.55 percent, and deepen repayment requirements for lenders that commit fraud or violate other FHA criteria.
Rep. Judy Biggart (R-Illinois), who first introduced the bill, said in a statement that “FHA’s declining financial position could cost taxpayers millions, and it threatens the stability of our housing market.
“We cannot afford another Fannie- and Freddie-style bailout, and mortgage holders don’t need any more market uncertainty driving down their home values,” she added.
FHA Acting Commissioner Carol Galante lauded the bill in a separate statement, saying that the provisions “will allow FHA to continue its efforts to strengthen its enforcement capabilities in order to protect its insurance fund and American taxpayers.”
Analysts have long flagged the FHA for its undercapitalized mortgage insurance fund in the wake of the financial crisis. Flattened home prices and loan defaults siphoned funds away from the agency, slashing capital on hand to 0.24 percent – far below the 2 percent capital buffer required by federal law.
Joseph Gyourko, a real estate and finance professor at the University of Pennsylvania, brought the issue to bear with research last fall that predicted the FHA would need some $50 billion to $100 billion in Treasury bailout funds – an unprecedented crisis, if so, for the nearly 80-year-old agency.
Since then, the FHA has taken steps to replenish the fund. Earlier this year the agency increased annual mortgage insurance premiums by one-tenth of 1 percent for loans under $625,000, effective for lenders by April, and upped the annual premium by 0.35 percent for loans above that figure. Upfront premiums went up by 0.75 percent.