House Subcommittee Passes FHA Solvency Draft Bill
February 8, 2012
The House Financial Services Subcommittee on Insurance, Housing and Community Opportunity this week approved draft legislation that would ensure FHA solvency, including an indemnification requirement for early period delinquency.
The discussion draft, “FHA Emergency Fiscal Solvency Act of 2012,” was approved by voice vote and sent to the House Financial Services Committee, where it will be introduced in legislative form. It contains provisions the Department of Housing had asked for previously to strengthen the fiscal strength of the FHA Mutual Mortgage Insurance Fund as well oversight of approved lenders.
Four of the provisions in the discussion draft had been on HUD’s wish list to Congress since 2010 and three of those were part of the original FHA reform bill proposed by the Obama administration in February 2011.
The provisions include indemnification by mortgagees, delegation of insurance authority and the authority to terminate approval of mortgages to originate or underwrite FHA-insured loans. The fourth provision – authorization to participate in the origination of FHA-insured loans – was added later at HUD’s request. All four were in the FHA reform bill passed by the House in 2010.
The indemnification provision was expanded to require indemnification of the HUD secretary for a loss arising from “early period” delinquency and resulting from a material violation of FHA rules and guidelines.
The provision also requires HUD to establish a program for reviewing each early period delinquency and to issue a public report on the review results, any indemnification required and its potential impact on the MMI Fund.
“Early delinquency” is defined as falling 90 days or more behind on the mortgage payments within 24 months of origination of the mortgage.
The draft bill also proposes requiring semiannual actuarial studies during a period that the MMI Fund falls below the capital ratio requirements as well as a cost-and-feasibility analysis of conducting actuarial studies on a quarterly basis.
Furthermore, the draft bill proposes to require the HUD secretary to establish and collect annual premium payments of “not less than 0.55 percent and not exceeding 2.0 percent” of such remaining insured principal balance. For mortgages with a 95 percent loan-to-value ratio, the premium may be collected for 30 years in an amount not exceeding 2.05 percent of the remaining insured principal.
The annual premium amendment takes effect six months after the bill’s enactment. The draft bill also calls for an FHA deputy assistant secretary for risk management and regulatory affairs, and establishment of a chief financial officer for Ginnie Mae.
Other amendments approved during the markup include the implementation of an emergency capital plan for the MMI Fund, a requirement for approved mortgagees to report to FHA when they stop buying mortgages or mortgage servicing rights from other approved mortgagees, and an FHA safety and soundness review by an independent third party.
Other areas of interest
- Delinquency
- Mortgage Insurance
- FHA, VA
- Legislation
- HUD
- FHA Lenders
- FHA Activity
- FHA Programs
- FHA & Ginnie Mae
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