The House Financial Services Committee Tuesday approved a bill to enhance the FHA's authority to police bad lenders after rejecting an amendment that would have reduced the agency's loan guarantees.
The "FHA Emergency Fiscal Solvency Act" provides the administration with the tools to bolster the government's mortgage insurance fund and lower the program's risk, according to the bill's sponsor Rep. Judy Biggert, R-Ill.
Her bill garnered Democratic backing as well as support from the Mortgage Bankers Association (MBA), National Association of Realtors, and National Association of Home Builders.
But during the markup of the measure (H.R. 4264) Rep. Lynn Westmoreland, R-Pa., offered an amendment to reduce the 100% FHA guarantee to 80% of the loan amount. The Westmoreland language requires FHA lenders to be on the hook for losses of up 20%.
"FHA lenders would have to put skin in the game," Westmoreland said. "It means FHA lenders will no longer take advantage of the taxpayer."
The trade groups warned the amendment would "severely impact lender participation" in the FHA program and reduce the availability of mortgage credit.
Considering the condition of the mortgage market, it doesn't need "another jolt," said Rep. Barney Frank, D-Mass. He urged committee members to defeat the Westmoreland amendment and it was voted down 36-18.
The committee later approved the FHA bill by a voice vote.
H.R. 4246 strengthens FHA's authority to seek indemnification for losses on loans that exhibit "serious and material" violations of FHA underwriting requirements. The bill also mandates an appeals process for indemnification cases that the Department of Housing and Urban Development scrapped recently. MBA supported this provision.
"This amendment is vital to insuring that responsible lenders are not discouraged from participating in the FHA program," MBA president and chief executive David Stevens said.
The solvency bill also requires FHA to submit a report to Congress every month on the financial condition of the agency's single-family insurance fund. Democrats quickly labeled the clause excessive and "impossible" for FHA to meet.
The fund currently has a 0.24% capital ratio. The bill directs HUD to submit an "emergency capital plan" to Congress outlining how to restore FHA's solvency.
The House is expected to pass H.R. 4246 soon, but its fate in the Senate is unclear.