July 31, 2013
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Earlier today, the Senate Banking Committee voted to favorably report the FHA Solvency Act of 2013, S. 1376. The legislation, which was introduced by Committee Chairman Tim Johnson (D-SD) and Ranking Member Mike Crapo (R-ID) passed by a vote of 22-1, with only Sen. Tom Coburn (R-OK) voting in opposition. 
 
S. 1376 would authorize the Federal Housing Administration (FHA) to implement a number of changes to their single-family and reverse mortgage lending programs designed to shore up the finances of FHA’s Mutual Mortgage Insurance Fund (MMIF).  Specifically, the bill would require a minimum annual mortgage insurance premium of 55 basis points on FHA loans, and it would raise the minimum for the MMIF’s capital reserve ratio to 3 percent from 2 percent.  In addition, FHA would be given the authority to seek indemnification against FHA-insured mortgages that were insured through the lender insurance and direct endorsement programs.
 
More information on the bill’s major provisions are available in a previous blog post, and in a section-by-section analysis of the bill posted by the Banking Committee.
 
Manager’s Amendment
 
At the beginning of the markup, the committee unanimously passed a manager’s amendment that incorporated several proposals from individual Senators.  Among the amendments included in the package were:
 
- An amendment by Sen. David Vitter (R-LA) requiring HUD to notify Congress if it has to receive funding from the Treasury Department to shore up FHA’s finances.
- A Vitter amendment prohibiting FHA from insuring mortgages for homeowners who have two previous foreclosures.
- A Vitter amendment requiring FHA to be subject to an annual “stress test” conducted by the Federal Reserve
- An amendment by Sen. Jack Reed (D-RI) that would allow FHA to transfer certain loan-servicing responsibilities to sub-servicers.
- An amendment by Sen. Joe Manchin (D-WV) that would require the U.S. Government Accountability Office (GAO) to conduct a study examining the appropriate loan limits for FHA programs. 
 
Also during the markup, Sen. Elizabeth Warren (D-MA) introduced an amendment that would have modified provisions in the bill that require FHA to implement escalating annual premium surcharges whenever the MMIF does not meet is required capital ratio.  Warren argued that the mandatory surcharges could restrict low- and moderate-income borrowers’ ability to access FHA loans and make it more difficult for FHA to fulfill its traditional role of ensuring a liquid housing market during economic downturns.  NCSHA has expressed similar concerns about these provisions to Banking Committee staff. 

Warren said that her amendment would address these concerns by making the surcharges optional and instead allowing FHA to adopt other methods to improve its capital ratio.  She withdrew her amendment after Johnson and Crapo agreed to work with her to develop a solution to this issue.

Outlook

It is unclear at this time when the full Senate will consider S. 1376.  Looking ahead, both Johnson and Crapo have indicated that the Banking Committee will consider legislation reforming the Government Sponsored Enterprises (GSEs) in September.  Johnson and Crapo have also said that they prefer that the Senate consider FHA reform and GSE reform separately, in contrast to the House Financial Services Committee, which recently passed comprehensive reform legislation that dealt with both FHA and the GSEs.

NCSHA’s position paper on housing finance reform calls for a system with an explicit government guarantee, robust affordable housing goals, and a clear commitment to partnering with HFAs.  NCSHA will continue to meet with policymakers to advocate for a system that ensures that responsible low- and moderate income Americans have the opportunity to purchase a home.