[Congressional Record (Bound Edition), Volume 156 (2010), Part 7]
[House]
[Pages 10331-10334]
[From the U.S. Government Publishing Office, www.gpo.gov]




                         FHA REFORM ACT OF 2010

  The SPEAKER pro tempore. Pursuant to House Resolution 1424 and rule 
XVIII, the Chair declares the House in the Committee of the Whole House 
on the state of the Union for the consideration of the bill, H.R. 5072.

                              {time}  1739


                     In the Committee of the Whole

  Accordingly, the House resolved itself into the Committee of the 
Whole House on the state of the Union for the consideration of the bill 
(H.R. 5072) to improve the financial safety and soundness of the FHA 
mortgage insurance program, with Mrs. Halvorson in the chair.
  The Clerk read the title of the bill.
  The CHAIR. Pursuant to the rule, the bill is considered read the 
first time.
  The gentlewoman from California (Ms. Waters) and the gentlewoman from 
West Virginia (Mrs. Capito) each will control 30 minutes.
  The Chair recognizes the gentlewoman from California.
  Ms. WATERS. Madam Chair, I yield myself such time as I may consume.
  Madam Chairwoman, I stand in strong support of H.R. 5072, the FHA 
Reform Act of 2010.
  This bill is the product of three hearings on FHA in the past 6 
months and bipartisan work with the ranking member of the Subcommittee 
on Housing and Community Opportunity, Congresswoman Capito. In fact, 
this bill contains most of the provisions Congresswoman Capito included 
in her bill on FHA introduced earlier this year.
  Moreover, I am proud to say that this bill passed out of the 
Financial Services Committee on a simple voice vote back in April.

[[Page 10332]]

  The FHA Reform Act is critical, timely, and important for households 
across the country. The act will enable the FHA to respond to the 
current housing and economic crisis and continue its mission of 
providing homeownership opportunities to millions of Americans.
  We know that now, more than ever, preserving this mission is 
critical. As the private market has contracted, FHA has stepped into 
the void and injected much-needed credit into our mortgage system. 
Increasingly, it is the only option available for American homebuyers 
with less than a 20 percent down payment.
  FHA insurance has been particularly important for minority 
communities, low-income families, and first-time homebuyers. The bill 
would provide FHA with more flexibility to adjust their annual mortgage 
insurance premium.
  As I understand it, if FHA limits the premium increase to 0.90 
percent, as Commissioner Stevens has indicated, new borrowers will see 
their monthly payments rise by about $42 a month.
  Now, while I am reluctant to support providing FHA with more 
flexibility, I believe that this provision is needed to keep FHA 
financially healthy. We have also taken steps to ensure that FHA 
requirements are not excessively onerous for homebuyers.
  Secondly, this bill provides FHA with the authority to crack down on 
lenders that use fraud or misrepresentation or don't originate or 
underwrite loans in accordance with FHA guidelines. FHA has already 
taken steps to increase its lender enforcement activities, and the 
provisions included in this bill will empower them to rout out the bad 
actors while reserving the program for the lenders that follow the 
rules.
  Thirdly, this bill empowers FHA to improve their internal controls 
that improve data tracking, risk management, and reporting to the 
public and to Congress. This includes improving monitoring of early 
defaults and claims, tracking mortgage information by loan servicers, 
providing FHA with the ability to contract out for additional credit 
risk analyses, requiring mortgagees to report to FHA when they stop 
buying loans from other mortgagees, and requiring a GAO study on FHA.
  The bill also creates a new Deputy Assistant Secretary at FHA for 
risk management and regulatory affairs.
  I believe the bill in front of us today is critical for ensuring a 
strong future for FHA, and I request my colleagues' support.
  I reserve the balance of my time.

                              {time}  1745

  Mrs. CAPITO. Madam Chair, I yield myself such time as I may consume.
  I would like to thank the chairwoman, Chairwoman Waters, and the 
chairman of the full committee, Chairman Frank, and Ranking Member 
Bachus for their good, hard work on this legislation.
  As I am an original cosponsor of this legislation, I rise in full 
support of H.R. 5072, the FHA Reform Act of 2010. H.R. 5072 amends the 
National Housing Act to include enforcement and premium changes to the 
FHA single-family mortgage insurance program that will improve the 
insurance fund's financial condition and enhance certain enforcement 
tools to protect against fraudulent or poorly underwritten and insured 
loans.
  The bill incorporates a majority of the provisions in a bill that I 
introduced, H.R. 4811, the FHA Safety and Soundness and Taxpayer 
Protection Act. H.R. 4811, my bill, went further than the proposals put 
forth by the administration. My legislation included some additional 
enforcement, fiscal and risk-assessment tools necessary to adequately 
administer the program, detect fraud and abuse, strengthen underwriting 
standards, and protect the taxpayer. I appreciate Chairman Frank and 
Chairwoman Waters' willingness to include the additional provisions 
that were part of my bill which I believe made H.R. 5072 a stronger 
bill and one that is more able to address the pressing challenges 
before the FHA today.
  I would also like to thank Secretary Donovan of HUD and Commissioner 
Stevens of the FHA for testifying before our committee, and also for 
working with me and my staff and the majority staff to formulate what I 
think is a very good bill.
  The FHA was established by the National Housing Act of 1934 to 
broaden homeownership, protect lending institutions, and stimulate the 
building industry. I did not realize this, but prior to the creation of 
FHA, home mortgages did not exceed 50 percent of the home value and did 
not extend past the fifth year. At the end of 5 years, mortgages had to 
be either paid or renegotiated. But during the Great Depression, 
lenders were unable or unwilling to renegotiate many of the loans that 
came due. Consequently, many borrowers lost their homes and lenders 
lost money because property values declined significantly. The FHA 
program was established originally to provide stability and liquidity 
in the market. Its creation fostered the 30-year mortgage product and 
led to standardized mortgage instruments.
  Once again, today, FHA has played an important role in a difficult 
housing market. As private sector lenders have scaled back their 
activities during the past 2 years, the FHA has significantly increased 
its share of the single-family mortgage market from less than 5 percent 
to more than 30 percent, but increased delinquencies and foreclosures 
across the Nation have had a detrimental effect on the financial health 
of the FHA program. An independent actuarial report which was published 
on November 12, 2009 showed that the capital reserve ratio for the 
Mutual Mortgage Insurance Fund, the MMIF, dropped below the 
congressionally mandated threshold of 2 percent to a less-than-expected 
.53 percent, a serious red flag. The actuarial review also indicated 
that the economic value of the FHA declined over 75 percent from last 
year to $2.73 billion. In light of these facts, it is essential that 
Congress and the FHA enact reforms to ensure that a bailout of FHA is 
not and will not be necessary.
  Madam Chair, the provisions of this bill are an important step in 
providing HUD with the tools it needs to supervise and monitor the FHA 
program and adequately assess risk. As the chairwoman has said, of the 
many important provisions included, H.R. 5072 authorizes FHA to 
increase annual insurance premiums and requires indemnification by 
lenders for loss on loans they originate.
  The program is intended to be self-funded. Proceeds from the premiums 
paid by the homeowners for the FHA guarantee are used to operate the 
program and pay losses when loans default. The ability to increase 
annual premiums will allow HUD the ability to raise annual premiums 
above the .55 percent cap, which will allow FHA to more adequately 
price for risk and to build up its reserve ratio which, as we know, has 
fallen below its congressionally mandated level. The indemnification 
provisions in H.R. 5072 will give HUD the ability to seek restitution 
against unscrupulous lenders who make loans they never should have 
made.
  H.R. 5072 is an important and necessary bill; it gives HUD the tools 
it needs to raise the annual premiums so that HUD can begin the process 
of putting the FHA program back on the road to a program that has an 
adequate reserve ratio and enough capital for the program to run in a 
safe and sound manner.
  However, let me be clear: H.R. 5072 is not a panacea. The Department 
and this Congress and future Congresses must be ever vigilant in our 
oversight of this program to make certain that the program is operated 
in a way that assures the taxpayer is protected.
  Recent reports indicate that FHA, Fannie Mae and Freddie Mac are 
responsible for 100 percent of today's new mortgage originations, which 
means that the exposure for the taxpayer continues to grow day by day. 
That is why it was and still is imperative that reform of Fannie Mae 
and Freddie Mac be part of any attempt to fix our financial and 
regulatory system. Fannie and Freddie were a big part of what caused 
the financial collapse, and they must be part of the solution.

[[Page 10333]]

  There are numerous issues currently being debated as part of the 
regulatory reform package such as risk retention, qualified mortgages, 
derivatives, hedge funds--and the list goes on--that could have 
significant implications for the future of the mortgage market as well 
as the direction of reform for Fannie and Freddie. H.R. 5072, the bill 
we are considering today, is extremely important because it provides 
the administration with the ability to increase the premiums which will 
improve FHA's current financial situation and prevent the need for any 
taxpayer bailouts.
  I urge my colleagues to fully support H.R. 5072.
  Madam Chair, I yield 3 minutes to a distinguished member of the 
Financial Services Committee and the Housing Subcommittee, my friend, 
Mr. Lee, from New York.
  Mr. LEE of New York. I thank my friend from West Virginia for 
yielding.
  I rise today in support of H.R. 5072, the FHA Reform Act of 2010. 
This legislation before us today clearly takes important steps towards 
restoring stability into our housing market.
  I share the frustration that I hear, though, from my constituents in 
western New York who have been responsible homeowners but who are 
increasingly paying the price for the fraud and abuse throughout our 
mortgage system. No one--no business and no person--should be able to 
take risks without having to accept the consequences.
  We've all seen the consequences of the actions taken by irresponsible 
lending practices, and Congress has rightfully looked at outdated 
mortgage structures to ensure responsible homeowners have access to 
safe and affordable mortgages without forcing them to pay for the 
irresponsibility of others.
  Earlier this year, I joined my friend from New Jersey (Mr. Adler) in 
introducing H.R. 3146, the 21st Century FHA Housing Act, which took 
much of what we have learned from past FHA shortages to ensure they 
don't happen again. I am pleased that the bill before us today does 
this as well and includes many of the reforms that we proposed last 
year. H.R. 5072 will help ensure that FHA will be a stabilizing force 
in the market and support responsible homeownership for first-time 
buyers and underserved markets.
  Given that FHA is now one of the primary facilitators of mortgage 
financing, it is absolutely necessary that we get this reform right. 
FHA must have the resources it needs to effectively oversee mortgages 
and ensure that no bad actors are allowed to function in the 
marketplace.
  We need a responsive, efficient, and capable FHA to help ensure that 
owning a home remains part of the American Dream. I believe the bill 
before us today will help keep that dream alive. I urge my colleagues 
to support its passage.
  Mrs. CAPITO. Madam Chair, I would just reiterate that this bill has 
my support. It passed out of the committee by voice vote. I think we 
did a good job meeting each other halfway on certain issues that we 
might have had some disagreement on, and I look forward to the passage 
of this bill.
  Madam Chair, I yield back the balance of my time.
  Mr. LANGEVIN. Madam Chair, I rise in strong support of H.R. 5072, the 
FHA Reform Act, which will strengthen the rules and financial stability 
of the Federal Housing Administration's programs. H.R. 5072 will help 
tighten FHA underwriting standards, rebuild its capital reserves and 
assist in the recovery of the housing market. This measure has 
bipartisan support and has received numerous endorsements from housing 
and real estate organizations.
  H.R. 5072 would empower FHA to improve its financial position by 
allowing the agency to adjust their premium structure for new 
borrowers, while still providing affordable mortgage insurance to the 
individuals FHA is intended to serve. This measure also provides FHA 
with enhanced authority to terminate FHA lenders if evidence of fraud 
or noncompliance is discovered. It will also improve FHA's internal 
reporting systems to better manage risk and provide transparent data to 
the public and to Congress.
  Over the years, FHA has played a key role in supporting housing 
finance opportunities to underserved families and assisting first time 
homebuyers. Most recently, FHA has helped stabilize our housing market, 
and reform is needed to strengthen its solvency. FHA has already 
implemented an unprecedented number of credit policy and risk 
management changes to ensure its effectiveness and soundness and to 
protect the American taxpayer. The FHA Reform Act builds upon these 
necessary changes.
  In my home State of Rhode Island, we were hit early and hard by the 
housing and economic crises. We currently have the fourth highest 
unemployment rate and one of the highest foreclosure rates in the 
country. Congress has an important role to play in helping Rhode Island 
families regain financial ground, and this bill is an important 
ingredient in stabilizing our housing market. The FHA Reform Act will 
ensure that responsible families have the opportunity to purchase a 
home, but also put into place the appropriate measures to prevent 
future crises. I urge all my colleagues to support this bill.
  Mr. BACA. Madam Chair, I rise in strong support of H.R. 5072, the FHA 
Reform Act.
  The failed economic policies of the Bush administration and 
Republican-controlled Congresses, led this country into a deep 
recession where we experienced serious drops in housing value and 
unemployment.
  The economic conditions caused the FHA to dip below acceptable 
capital reserves numbers.
  But thanks to the leadership of HUD Secretary Donovan and FHA 
Commissioner Stevens, FHA has continued to operate in a safe and stable 
manner, continuing to provide mortgage insurance to credit-worthy 
homeowners.
  Since 1934, the FHA has played a vital role in the nation's economy 
helping over 37 million Americans achieve the dream of homeownership.
  FHA's role can be seen clearly today as they play a vital stabilizing 
role in the market and support homeownership for first-time buyers and 
underserved markets.
  As our economy continues along the path of recovery, it is likely 
that the FHA will continue to play a large role in our housing market.
  H.R. 5072 will make essential reforms to the FHA program, 
strengthening their finances, improving risk management, and rooting 
out the bad actors that helped cause this crisis in the first place.
  The bill before us calls for an increase in FHA's authority to raise 
annual premiums enabling FHA to decrease entry barriers and up-front 
premiums.
  This bill also enables the FHA to go further in the action they have 
already taken in increasing the FHA fund at an approximate value of 
$300 million per month.
  Finally this bill will also strengthen FHA's ability to ensure 
responsible lending activity by withdrawing from lenders that 
repeatedly fail to follow responsible underwriting and financial 
standards.
  I want to thank Ms. Waters, Ms. Capito, and Mr. Frank for their 
leadership and hard work in bringing this bill to the floor.
  I encourage my colleagues to follow the leadership of Secretary 
Donovan and Commissioner Stevens and vote ``yes'' on H.R. 5072.
  Mr. CONYERS. Madam Chair, I rise in strong support of H.R. 5072, the 
``FHA Reform Act of 2010.'' This bill will make essential reforms that 
are needed to strengthen the financial footing of the Federal Housing 
Administration, which helps provide mortgage insurance to expand 
homeownership opportunities for thousands of Americans each year.
  Passage of H.R. 5072 will enhance the FHA's authority to crack down 
on fraudulent lenders and those who violate their loan requirements. 
Clearly, the time has come for the federal government to provide much 
needed oversight of unscrupulous participants in the mortgage lending 
industry.
  FHA has helped 37 million Americans buy homes since 1934, and is 
filling a vital role in the nation's economy by providing crucial 
mortgage insurance at a time when the private sector has pulled back 
from the mortgage market. Because of the ``FHA Reform Act of 2010,'' 
FHA will be able to put itself on strong financial footing so that it 
can continue providing American families with the necessary financial 
backing to become home owners--the foundation of the American dream.
  H.R. 5072 also requires the FHA to improve its internal reporting 
systems to better manage risk and to provide transparent data to the 
public and Congress. This includes better monitoring of early defaults 
and claims, tracking mortgage information by loan servicer, and 
requiring a Government Accountability Office study on FHA. These kinds 
of reforms will make the FHA a more efficient, cost-effective, and 
sustainable program in the long run, and hopefully allow more families 
to become homeowners.
  The bill is supported by a range of organizations including the 
National Urban League, the National Association of Realtors, the 
National

[[Page 10334]]

Council of La Raza, the Mortgage Bankers Association, the National 
Community Reinvestment Coalition, and the National Association of Home 
Builders.
  I encourage my colleagues to support the bill.
  Ms. LORETTA SANCHEZ of California. Madam Chair, I rise in support of 
H.R. 5072, the FHA Reform Act of 2010. This legislation will, among 
many provisions, allow FHA to adjust its premium structure for new 
borrowers, while continuing to provide services to the communities it 
was intended to serve. Unfortunately, the economic crisis--the national 
housing prices decline, unemployment, and loan losses--led to the FHA's 
capital reserves falling below the two percent level required by law. I 
believe, the changes my colleagues and I will make to this program will 
help ensure its success in the long term, while reducing federal 
spending and saving taxpayers $2.5 billion dollars over the next five 
years.
  The FHA Reform Act of 2010 will ensure FHA continues its role as a 
key stabilizing force in the market and support sustainable 
homeownership for first-time buyers and underserved markets. That said, 
I believe the FHA will help keep the recovery of our country on track 
by playing a central role in the housing finance system for some time 
before it scales back to its role as private capital returns.
  H.R. 5072 will also grant FHA the authority to terminate lenders' 
approval to originate or underwrite loans backed by FHA insurance when 
FHA finds evidence of fraud or noncompliance. Unfortunately, in the 
second half of 2009, 2,357 default notices were issued to my 
constituents in the cities of Anaheim, Fullerton, Garden Grove, and 
Santa Ana. For this reason, it's imperative that FHA is reformed, so my 
constituents seeking to become homeowners are afforded the opportunity 
to do so from a safe and trustworthy source.
  This bill is important to my constituents and many other Americans 
struggling to keep their homes.
  I urge my colleagues to support this bill.
  Mr. VAN HOLLEN. Madam Chair, I want to thank Chairman Frank and 
Chairwoman Waters for their efforts in bringing this important and 
necessary piece of legislation to the floor today.
  As a result of the economic crisis, the Federal Housing 
Administration had to step in to fill the void that emerged when large 
numbers of homeowners experienced difficulty finding private companies 
willing to insure their mortgages. While increasing the number of loans 
it insured helped the FHA put more borrowers into new homes, it also 
severely depleted its capital reserves--causing them to fall below 
congressionally mandated levels.
  One of the FHA's responsibilities is to provide mortgage insurance 
for low-income homeowners who otherwise would have difficulty accessing 
insurance. By providing insurance on loans made by approved lenders, 
the FHA has been able to guarantee the availability of inexpensive 
mortgages and help approximately 37 million borrowers. To insure that 
FHA has the resources necessary to continue performing this important 
function, Congress requires the FHA to maintain capital reserves of at 
least 2 percent. Under the economic strain of the past couple of years, 
these reserves have fallen well below that level. Even though the 
Department of Housing and Urban Development has taken significant 
administrative and regulatory steps to address the shortfall, as an 
added measure, the FHA has requested that Congress grant it the 
legislative authority to adjust its premium structure.
  The bill we are voting on today provides the FHA with new authority 
to raise the annual premiums it receives from new borrowers with 
mortgages at or below 95 percent of the home's value. If this bill 
passes, FHA will be permitted to raise the premiums it receives on 
mortgage insurance to up to 1.55 percent of the loan balance. This move 
should enable the FHA to raise the funds it needs to restore its 
capital reserves to financial healthy levels--so that it can continue 
providing mortgage insurance to new home owners for many years to come.
  Congress is committed to doing whatever it takes to get this economy 
going again, to get Americans back to work, to enable them to buy cars 
and homes and to start businesses. Our legislative efforts have taken 
many forms from small business tax cuts, to financial services industry 
reform to the measure we are considering here today.
  This is important legislation that will help the economy by helping 
many borrowers seeking mortgage insurance. I urge my colleagues to join 
me in supporting this bill.
  Ms. ESHOO. Madam Chair, as we work to turn the economy around it is 
imperative that we continue to support the Federal Housing 
Administration (FHA) which has played a critical role in stabilizing 
the nation's housing market.
  It was not too long ago that we saw unscrupulous mortgage lending 
practices that caused hundreds of thousands of Americans to lose their 
homes. Thankfully, we're beginning to see a decline in foreclosures 
rates. In May, we saw a 3 percent decrease in rates and in April we saw 
a 9 percent decrease. We must ensure this declining foreclosure rate 
trend continues and reforming the FHA is essential in doing so.
  The legislation, H.R. 5072, the FHA Reform Act, strengthens the FHA 
while allowing access to safe, affordable financing by responsible 
borrowers. The bill provides the FHA with the authority to manage 
annual mortgage insurance premiums. It also provides significant 
safeguards against dishonest lending practices that are hidden from 
homebuyers.
  As the economy recovers, our nation's consumers are beginning to 
regain confidence in the housing market. We must demonstrate to these 
consumers that they can once again trust lenders. Providing the FHA 
with more authority over mortgages and lending is necessary for the 
recovery of not only the real estate market, but for the economy as a 
whole.
  I regret that an obligation in my District kept me from voting for 
this legislation, but had I been present, I would have been proud to 
vote in support of the bill.
  Ms. WATERS. Madam Chair, I would simply like to close by thanking 
Mrs. Capito for all of the work that she put into this legislation and 
the cooperation that she gave to me and her staff to my staff.
  This is a good bill. The differences have been worked out between 
both sides of the aisle. We worked hard to make sure that we maintained 
FHA, but that we keep a close watch on it; that, in fact, we give it 
flexibility, but at the same time ensure the continuity and the 
consistency of FHA that should be there to provide the guarantees for 
our citizens that so desperately need them.
  Madam Chair, I yield back the balance of my time.
  The CHAIR. All time for general debate has expired.
  Ms. WATERS. I move that the Committee do now rise.
  Accordingly, the Committee rose; and the Speaker pro tempore (Mr. 
Schiff) having assumed the chair, Mrs. Halvorson, Chair of the 
Committee of the Whole House on the state of the Union, reported that 
that Committee, having had under consideration the bill (H.R. 5072) to 
improve the financial safety and soundness of the FHA mortgage 
insurance program, had come to no resolution thereon.

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