New legislation being discussed in the Senate would raise the caps on Federal Housing Administration mortgage insurance premiums, impose Qualified Mortgage standards on FHA-insured loans and expand the scope of indemnification and mortgagee termination. Also impacted would be federally insured reverse mortgages.
Details of the proposed FHA Solvency Act of 2013 were released by the Senate Banking Committee on Monday.
The legislation would require that a minimum annual FHA mortgage insurance premium of at least 55 basis points be charged on FHA-insured loans. In addition, the up-front and annual premium caps would be raised by 50 basis points.
The secretary of the Department of Housing and Urban Development would be required under the proposal to evaluate premium levels at least annually to ensure that the combined up-front and annual premiums for the life of the loan will cover expected risk to the Mutual Mortgage Insurance Fund and maintain the mandated capital reserve ratio.
The National Housing Act would be amended by the legislation to require that the MMI Fund capital reserve ratio be increased to 3 percent within 10 years. If the capital ratio falls below required levels, reporting requirements would be escalated to one of three tiers depending on the level of deficiency.
Premium surcharges could be required in some cases if the MMI Fund is undercapitalized.
HUD would be required under the Senate’s proposal to revise FHA underwriting standards using criteria similar to that of the Consumer Financial Protection Bureau for Qualified Mortgages. This would include evaluation of income, payments and credit history.
The National Housing Act would be amended to expand the criteria used to compare mortgagee performance.
Mortgagees, which currently can only be terminated in specific geographical areas, could be terminated on a national basis if such a law is enacted.
Another change would be to give HUD the authority to seek indemnification from FHA mortgagees approved for the direct endorsement program. HUD currently can only seek indemnification from mortgagees that are approved to originate loans under the lender insurance program.
“To qualify for indemnification, the mortgage must have a material defect that would have prevented the loan from being insured or have involved fraud or misrepresentation,” the Senate overview states. “Except in cases of fraud or misrepresentation, the loan must have been delinquent within 36 months and resulted in a default.”
On home-equity conversion mortgages, enactment of the legislation would enable HUD to manage the HECM program through mortgagee letters that would be issued concurrently with rulemaking. Such authority would enable quick changes while maintaining the option for public comments.
The seller concessions rule would be finalized by HUD under the proposal.
If legislation is passed as proposed, the HUD secretary would be required to establish a single, publicly available, online resource guide for lenders and servicers about the requirements, policies, processes and procedures that apply to FHA-insured loans.
The proposal calls for the establishment of an FHA chief risk officer who would be required to study the lowest performing loans at least once a year.
Any events that occur between the finalization of an annual actuarial report and the submission of the report to Congress would have to be disclosed under the proposal.
The proposal requires the Government Accountability Office to examine HUD’s disclosure of FHA data and consult with “prominent academics” experienced in the housing market about the data. The GAO would make recommendations about the data and conduct a follow up study about implementation of the recommendations.
