U.S. Senate panel approves bill to bolster FHA finances

Reuters News
Posted: Jul 31, 2013 12:56 PM

WASHINGTON (Reuters) - A U.S. Senate panel on Wednesday approved a bipartisan bill aimed at bolstering the finances of the Federal Housing Administration, which may need to turn to taxpayers for a bailout later this year.

The Senate Banking Committee passed the FHA bill by a vote of 21 to 1. It was introduced by South Dakota Democrat Tim Johnson, the committee's chairman, and Idaho Senator Mike Crapo, the top Republican.

The FHA, which insures about a third of U.S. mortgages, faces a projected shortfall of $16.3 billion due in part to defaults on mortgages it guaranteed from 2007 to 2009 as the housing bubble deflated.

It could be forced to turn to the Treasury Department for a bailout at the end of September.

"This bill will give the Federal Housing Administration the tools it needs to get back on track, so it can continue to help qualified borrowers realize the dream of homeownership and provide stability to the housing market in times of stress," Johnson said in a statement after the vote.

The legislation now goes to the full Senate for a vote, but that is not likely to occur until after a month-long recess that begins next week. It could come up for a vote on its own or be included in a broader housing finance reform package that lawmakers hope to craft soon.

The bill would require minimum annual mortgage insurance premiums; require FHA's parent agency, the Department of Housing and Urban Development, to evaluate underwriting standards; and create new tools for punishing lenders who commit fraud.

Several changes to an initial draft bill Johnson and Crapo had introduced were incorporated in the legislation, including a plan to establish annual "stress tests" of the FHA, similar to the tests the Federal Reserve runs to gauge banks' health.

"The FHA is broke, plain and simple, and we absolutely have to get the taxpayers out of the bailout business," said Senator David Vitter, a Louisiana Republican and the sponsor of the stress test provision.

The U.S. House of Representatives passed its own FHA bill last month. Its version would give the agency new authority to tighten terms for reverse mortgages.

(Reporting by Emily Stephenson; Editing by Dan Grebler)