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By Corbett B. Daly
WASHINGTON, June 10 (Reuters) - The U.S. House of Representatives on Thursday approved a bill to shore up the finances of the cash-strapped Federal Housing Administration while also backing a measure to raise the loan limits for FHA-backed mortgages used to develop some apartment buildings.
In a 406-4 vote, lawmakers approved legislation to strengthen the FHA’s finances by giving it authority to nearly triple the annual fees it charges to borrowers, known as mortgage insurance premiums.
But lawmakers struck down a proposed amendment to require borrowers who purchase a home with a loan backed by the FHA to put more money down.
Minimum down payments are still 3.5 percent, though lawmakers did back a plan to require the FHA to examine those down payment requirements every year and submit a report to Congress.
The proposal to raise down payment minimums to 5 percent, sponsored by New Jersey Republican Representative Scott Garrett, had not been not expected to pass but did force members of the committee to vote against tightening lending standards at a time when the FHA is under financial stress.
The FHA has capital reserves equal to just 0.53 percent of the value of the thousands of outstanding U.S. home mortgages it insures, well below the 2.0 percent required by law, according to an independent actuarial study released late last year.
The bill would give the FHA authority to raise annual mortgage insurance premiums — which are paid out by the borrower over the life of the loan — to a maximum 1.5 percent. That’s up from the current 0.55 percent maximum, though the FHA says that if the measure becomes law it would gradually raise the premium—first to 0.85 percent or 0.9 percent.
To become law, the measure still faces approval by the Senate before President Barack Obama could sign it into law. A Senate version has not yet been introduced.
If the FHA is granted authority to raise the annual premium, FHA has said it would lower a separate upfront premium from the current 2.25 percent to offset those costs. The upfront premium is paid all at once at the time the loan is issued.
Representatives Anthony Weiner, a Democrat from high-priced New York and Republican Gary Miller from high-priced Southern California, sponsored the amendment, approved by voice vote, to increase the loan limits for buildings to be devloped into rental apartments.
FHA Commissioner David Stevens has repeatedly expressed confidence that the agency’s Capital Reserve Account would return to levels above 2 percent as recent changes to FHA underwriting standards would bring an additional $5.8 billion to FHA coffers.
The non-partisan Congressional Budget Office estimates those changes will bring just $1.9 billion to the FHA.
Because about 80 percent of the FHA’s business is with first-time home buyers, who typically make smaller down payments, the FHA’s role in the housing market is widely seen as vital.
The FHA’s share of the mortgage market has ballooned from a few percent in the boom years to more than 30 percent of home-purchase loans today as private capital has dried up. Including loans backed by Fannie Mae FNM.N and Freddie Mac FRE.N, the government is directly or indirectly backing close to 97 percent of the mortgage market.
The legislation’s chief sponsors are Representative Maxine Waters, a California Democrat, Representative Shelley Moore Capito, a West Virginia Republican and Representative Barney Frank, the Massachusetts Democrat who heads the House Financial Services Committee.