Senate Banking Leaders Offer Bipartisan FHA Reform Bill

Mortgage Origination Mortgage Servicing HUD Reverse Mortgages FHA U.S. Senate Qualified Mortgage

On July 15, Senate Banking Committee Chairman Tim Johnson (D-SD) and Ranking Member Mike Crapo (R-ID) released a discussion draft of a bill intended to improve the solvency of the FHA’s Mutual Mortgage Insurance Fund (MMI Fund). As with legislation recently passed by the House, the bill would allow HUD to manage its HECM program through mortgagee letters. Unlike the House bill, this draft further would require that, whenever HUD issues a HECM mortgagee letter, it also initiate a proposed rulemaking that addresses the subject of the mortgagee letter. The bill also would require that, for a mortgage to be eligible for insurance under the HECM program, the mortgage must contain terms and provisions for ensuring property maintenance, establishing escrow accounts, performing financial assessments, or limiting the amount of any payment made available under the mortgage.

In addition, the bill includes changes to the broader FHA insurance program, including provisions similar to those in a bill passed by the House last year with overwhelming bipartisan support. It would, for example, (i) set a minimum annual mortgage insurance premium of at least 55 basis points and increase existing up-front and annual premium caps by 50 basis points, (ii) direct HUD to establish underwriting standards using criteria similar to the CFPB’s criteria for Qualified Mortgages, and (iii) require that the MMI Fund achieve a capital reserve ratio of 3% within 10 years of enactment and establish escalating reporting requirements and program evaluations that take effect immediately if the capital ratio falls below required levels. Further, the bill would, among other things, (i) enhance HUD’s ability to seek indemnification from FHA-approved mortgagees approved to originate loans under the lender insurance program or the direct endorsement program, (ii) expand the criteria HUD uses to compare mortgagee performance and to allow HUD to terminate a mortgagee’s approval on a national basis, and (iii) require HUD to develop a single resource guide for lenders and servicers regarding the requirements, policies, processes, and procedures that apply to loans insured by FHA.

The committee has scheduled a legislative hearing on the bill for July 24, 2013.