Senators unveil details on plan to stabilize FHA

The FHA, created nearly 80 years ago, has run into financial struggles caused by the failure of bad loans made during the period around the financial crisis. The agency's projected shortfall for this fiscal year is running right about $1 billion in its insurance fund. 

"Our bill will give the FHA the tools it needs to get back on stable footing and strengthen a program important to many Americans, and I look forward to working with the rest of the committee to move this legislation forward," Johnson said.

Johnson has said his committee would take up an FHA bill first before moving on to a measure that would overhaul mortgage giants Fannie Mae and Freddie Mac. 

Several GOP members of the House Financial Services Committee last week released a discussion draft that would deal with both issues together and would require the FHA to become a self-sustaining entity, most likely within about two years of enactment of a measure. 

The FHA has already taken some recommended steps to mitigate its losses. But the Johnson-Crapo would provide more flexibility to bolster its balance sheet and protect taxpayers from having to step in with a bailout, the lawmakers said. 

The measure would create an advance warning system by raising the minimum for the Mutual Mortgage Insurance Fund’s capital reserve ratio to 3 percent.  

If the capital ratio doesn’t meet certain targets as it builds to the new minimum ratio, the bill would require the Department of Housing and Urban Development to take immediate action to address the shortfall.  

The legislation also would require minimum annual mortgage insurance premiums to improve FHA's long-term solvency. The levels will be reevaluated each year to ensure that the premiums expected risk and maintain the capital reserve ratio. 

The measure also would require HUD to examine underwriting standards using criteria similar to the Consumer Financial Protection Bureau's qualified mortgage rule.  

The Senate bill would require HUD to consolidate its lending guidelines and procedures for lenders to cut down confusion, while giving HUD new tools to hold lenders accountable for making bad home loans.

At this point, HUD is limited in the damages it can seek from bad actors in the mortgage market. 

In an effort to stabilize the reverse mortgage program, the legislation would give HUD greater operational and regulatory flexibility.