Corker praises FHA's policy changes

A senior Senate Republican praised a federal housing agency for moving forward on changes to its mortgage finance policies. 

Sen. Bob Corker (R-Tenn.), a member of the Senate Banking, Housing and Urban Affairs Committee, said Wednesday that he is pleased to see the Federal Housing Administration (FHA) following through on his request to get the agency on a path toward solvency by changing underwriting policies. 

"I am pleased that the FHA is following through on the steps we discussed last year to strengthen its fund and to get itself back to solvency, but this is only a first step in fundamentally reforming our system of housing finance so that we are not completely reliant on the government, and on taxpayer losses, to support homeownership,” Corker said. 

In December, Corker secured a commitment from Carol Galante, FHA's commissioner and assistant secretary for Housing, to overhaul FHA underwriting requirements to deal with substantial losses, primarily caused by a reverse mortgage program.

Galante announced a series of changes on Wednesday to help the agency better manage risk and further strengthen the health of the Mutual Mortgage Insurance Fund.

"These are essential and appropriate measures to manage and protect FHA’s single-family insurance programs," Galante said.  

"In addition to protecting the MMI Fund, these changes will encourage the return of private capital to the housing market, and make sure FHA remains a vital source of affordable and sustainable mortgage financing for future generations of American homebuyers.”

On Wednesday, the FHA announced the curtailment of the popular fixed-rate reverse mortgage program, the source of outside losses at FHA over the past few years. 

The agency also established a manual underwriting requirement for loans with credit scores below 620 and debt-to-income ratios above 43 percent and established a 5 percent down payment requirement for mortgages in excess of $625,500.

FHA also will require most FHA borrowers to continue paying annual premiums for the life of their mortgage loan.  

The agency estimates that the MMI Fund has lost billions of dollars in premium revenue on mortgages endorsed from 2010 through 2012 because of this automatic cancellation policy.  Therefore, FHA will once again collect premiums based upon the unpaid principal balance for the entire period for which FHA is entitled.  

"This will permit FHA to retain significant revenue that is currently being forfeited prematurely," the FHA said. 

The agency plans to step up its enforcement efforts for FHA-approved lenders with regard to aggressive marketing to borrowers with previous foreclosures and remind lenders of their duty to fully underwrite loan applications. 

New loans are required to meet FHA guidelines.

In addition, FHA will work with other federal agencies to address such false advertising by non-FHA-approved entities.  

Finally, the agency will create a new housing counseling initiative that would apply to a number of borrower classifications, including borrowers with previous foreclosures.