WASHINGTON – U.S. Senator Bob Corker, R-Tenn., a member of the Senate Banking Committee, introduced legislation to reform the Federal Housing Administration in an effort to begin restoring fundamentals in the home mortgage market after the FHA recently released an actuarial report showing that the fund has a negative economic value, essentially meaning the FHA is insolvent. The legislation, offered as an amendment to the TAG extension bill, proposes some important statutory changes to get FHA back to financial stability and protect taxpayers and homeowners alike.
“The FHA has moved so far beyond its original mission to assist low-income Americans purchase their first home that it poses a real threat to taxpayers and must be fixed to begin restoring fundamentals in a home mortgage market that has been heavily distorted by unprecedented government involvement in housing,” Corker said. “These common-sense reforms would help put FHA back on a path to financial stability.”
The FHA Stabilization and Reform Amendment would:
• Set the minimum FICO credit score for all new FHA-insured loans at 620 to better heed market standards
• Reduce the maximum loan limit to $625,000, consistent with FHA’s mission to help low and moderate income individuals to purchase their first home
• Place a temporary, 24-month moratorium on the full drawdown of the HECM reverse mortgage program to assess its viability after $2.8 billion in losses
• Require a 20% down payment for newly insured FHA-backed loans for borrowers seeking a new mortgage within 7 years of a prior foreclosure
A summary and text of the amendment are available below.
At a recent Banking Committee hearing on the topic of the FHA’s reserve ratio, Senator Corker questioned HUD Secretary Shaun Donovan about these reforms. A transcript from the hearing can be found below as well.