U.S. Sens. Mark Begich, D-Alaska, and Sherrod Brown, D-Ohio, have introduced legislation that they say will ensure sound lending practices by the Federal Housing Administration (FHA). The bill is companion legislation to the FHA Reform Act, which passed the U.S. House of Representatives in June.
The FHA Reform Act would help the FHA improve its risk management and prevent future taxpayer bailouts by giving the FHA the ability to implement a risk-based pilot program and use outside credit risk experts, according to a statement from the senators.
The act would require the FHA secretary to indemnify lenders of direct endorsement programs or insured mortgages for mortgages not originated or underwritten in accordance with program requirements, as well as give the secretary enhanced ability to review mortgagee performance.
The insurer would also be required to conduct a review and actuarial report on defaults of FHA-insured loans that occur within two years of issuance.
The legislation would also give the secretary the powerÂ require higher down payments for all borrowers, or certain classes of borrowers, based on criteria related to borrowers' credit scores or other industry standards related to financial soundness. The secretary would have the ability to reverse such requirements if and when the FHA's insurance fund is replenished to its statutory target level.
SOURCE: Office of U.S. Sen. Mark Begich