A House Financial Services subcommittee is slated to mark up a Federal Housing Administration (FHA) reform bill Tuesday that establishes a minimum annual mortgage insurance premium and extends the agency's indemnification requirements to all approved lenders.

The bill has the support of several industry trade groups. Housing subcommittee chairman Judy Biggert, R-Ill., may line up a Democratic member to co-sponsor the bill, according to one source.
However, the bill may attract amendments that could be controversial.

The National Association of Federal Credit Unions (NAFCU) wants the subcommittee to adopt an amendment that would discourage strategic defaults.

NAFCU president Fred Becker contends FHA's three-year lockout is too short, allowing a borrower to default on a GSE loan, but then obtain one from FHA after three years. NAFCU wants lawmakers to extend the lockout period to seven years – equal to what Fannie Mae and Freddie have on their books.

The amendment would "ensure the FHA is not propped up to be a safe haven for those who strategically default on previous mortgages," Becker said in a letter to subcommittee members.
The FHA currently charges a 115 basis point annual premium on FHA loans with a loan-to-value ratio greater than 95% – but there is no statutory requirement to charge an annual premium.

Under the FHA Emergency Fiscal Solvency Act, the FHA must charge a minimal annual premium of 55 bps. The bill caps the annual premium at 205 basis points.

The bill also requires the agency to "review the cause of every loan" that becomes 90-days delinquent within 24 months of origination and seek indemnification when losses to the FHA insurance fund are due to "material violations" of the agency's underwriting standards.
The agency recently issued a final rule to clarify its indemnification powers and expedite processing of indemnification cases involving lenders approved to participate in FHA's Lenders Insurance program.

The Biggert bill would extend the new indemnification rules to all FHA direct endorsement lenders.

Subscribe Now

Access to a full range of industry content, analysis and expert commentary.

30-Day Free Trial

No credit card required. Access coverage of the securitization marketplace, including breaking news updated throughout the day.