A near-unanimous vote was reached in favor of a bill that would increase liability for mortgagees that commit fraud or knowingly violated policies on government-insured mortgages. The legislation also addresses the solvency of the government’s home loan insurance fund.
H.R. 4264, the FHA Emergency Fiscal Solvency Act of 2012, was passed Tuesday by the House of Representatives by a vote of 402 to seven.
The bill would establish minimum annual mortgage insurance premiums of at least 0.55 percent of the remaining insured principal balance. In addition, it would give the Department of Housing and Urban Development the discretion to charge premiums up of up to 2.0/2.5 percent. The higher premiums would take effect six months after the bill is enacted.
The legislation also requires lenders that commit fraud to reimburse the Federal Housing Administration for related losses.
“If fraud or misrepresentation was involved in the origination or underwriting of the FHA mortgage, HUD could require the mortgagee to indemnify HUD regardless of when an insurance claim is paid,” an executive summary of the bill says.
Mortgagees would be required to indemnify FHA if HUD determines that lenders knew, or should have known, about a serious or material violation of FHA underwriting standards.
Government-insured mortgages that become 90 days delinquent during the first two years could trigger indemnification from lenders.
HUD will be required to set up an indemnification appeals process, issue regulations and report the number of fraudulent or improperly underwritten loans. The housing agency would also be required to report about how indemnification is impacting the FHA Mutual Mortgage Insurance Fund.
FHA lenders would have to report to HUD within 15 days of discovering that another lender is committing fraud or material misrepresentations.
The bill additionally expands HUD’s ability to terminate the authority of poorly performing mortgagees and requires performance tracking by servicer.
One section of the bill provides for the establishment of a chief risk officer for the Government National Mortgage Association, or Ginnie Mae.
Another section directs the HUD secretary to provide Congress an emergency capital plan for the restoration of the FHA’s fiscal solvency within 30 days of the bill’s enactment.
“The plan would provide a detailed explanation of how the FHA’s capital assets are monitored and tracked; how to ensure the FHA’s financial safety without borrowing funds from the U.S. Department of Treasury; and describe how, if necessary, the FHA would draw down funds from the Treasury,” the summary states.
Monthly reports to Congress are required as long as FHA’s capital reserve ratio is less than 2 percent.
Between 2013 and 2017, implementation of the bill is expected to cost $11 million.
“We are pleased that the bill passed by the House includes provisions that will allow FHA to continue its efforts to strengthen its enforcement capabilities in order to protect its insurance fund and American taxpayers,” Acting FHA Commissioner Carol Galante said in a statement. “We look forward to continuing to work with both chambers to enact final legislation to provide FHA with the tools it needs to build on the vital reforms implemented by this administration.”
