Senators Propose Legislation to Bring FHA Back from Brink

The new year may bring with it new reforms for the ""Federal Housing Administration"":http://portal.hud.gov/hudportal/HUD?src=/federal_housing_administration (FHA) as Congress considers a bill designed to bring the agency back to fiscal solvency.

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It was revealed in November that FHA's Mutual Mortgage Insurance (MMI) Fund--its protection against the cost of default claims--had fallen to a reserve ratio of -1.44 percent for fiscal year 2012. The agency is mandated by law to have a ratio of 2 percent.

In response, ""Sen. Pat Toomey"":http://www.toomey.senate.gov/?p=home (R-Pennsylvania) has introduced an amendment to reduce the risk of what would be FHA's first-ever taxpayer bailout. The amendment--S. 3678, ""A bill to help ensure the fiscal solvency of the FHA mortgage insurance programs of the Secretary of Housing and Urban Development, and for other purposes"":http://www.govtrack.us/congress/bills/112/s3678 --is identical to the ""FHA Emergency Fiscal Solvency Act of 2012"":http://www.govtrack.us/congress/bills/112/hr4264 (H.R. 4264), which passed in the House in September.

Toomey's amendment would: increase minimum annual insurance premiums, giving ""HUD"":http://portal.hud.gov/hudportal/HUD?src=/federal_housing_administration the ability to charge a higher premium if necessary; bar ""unscrupulous"" lenders from participating in FHA programs; require repayment [COLUMN_BREAK]

of losses to FHA by lenders who committed fraud; improve FHA's internal financial controls, transparency, and disclosure requirements; and require the ""Government Accountability Office"":http://www.gao.gov/ (GAO) to conduct an independent safety and soundness review of the agency.

""While I hope to see further reforms, this measure is an important first step in modernizing the FHA and protecting taxpayers from another government mandated bailout,"" Toomey said. ""A companion piece of legislation received wide bipartisan support in the House of Representatives, and I hope we can pass this legislation with the same enthusiastic bipartisan support in the Senate.""

According to the Library of Congress' website, S. 3678 has been referred to the Senate Committee on Banking, Housing, and Urban Affairs.

Toomey isn't the only senator acting to put FHA in the black. In the same week, ""Sen. Bob Corker"":http://www.corker.senate.gov/public/index.cfm/ (R-Tennessee) introduced his own amendment to the ""Transaction Account Guarantee extension bill"":http://www.govtrack.us/congress/bills/112/s3637 (S. 3637).

The ""FHA Stabilization and Reform Amendment"":http://www.corker.senate.gov/public/_cache/files/19435f56-0975-40b8-a441-3b57abfec5ba/12-11-12%20Corker%20FHA%20Stabilization%20and%20Reform%20Amendment_Bill_Text.pdf would: increase the minimum FICO score for all new FHA-insured loans to 620; reduce FHA's maximum loan limit to $625,000; place a 24-month moratorium on the full drawdown of the reverse mortgage program; and increase down payments to 20 percent for borrowers seeking a new mortgage within seven years of a prior foreclosure.

""The FHA has moved so far beyond its original mission to assist low-income Americans to purchase their first home that it poses a real threat to taxpayers and must be fixed to begin restoring fundamentals in a home mortgage market that has been heavily distorted by unprecedented government involvement in housing,"" Corker said. ""These common-sense reforms would help put FHA back on a path to financial stability.""