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FHA Reform: Shoring Up Federal Mortgage Insurance

By a vote of 406-4, the House passed the bipartisan FHA Reform Act of 2010 (HR 5072) on June 10th to make essential reforms to strengthen the financial footing of the Federal Housing Administration (FHA), which insures mortgages to expand homeownership opportunities; to reduce federal spending and save taxpayers money; and to enhance its authority to go after fraudulent lenders.

FHA has helped 37 million Americans buy homes since 1934 and is filling a vital role in the nation's economy, providing crucial mortgage insurance at a time when the private sector has pulled back from the mortgage market.

To shore up its finances, the bill permits FHA to raise the premiums for new borrowers with small downpayments, while continuing to provide affordable mortgage insurance to low-income and minority families.  The FHA's reserves have fallen below the two percent level required in law. The bill would reduce federal spending and save taxpayers $2.5 billion over five years.

In light of recent cases of mortgage fraud schemes spanning many years, the bill provides FHA with authority to crack down on fraudulent lenders and those violating its loan requirements.   

The legislation also requires FHA to improve its internal reporting systems to better manage risk and to provide transparent data to the public and Congress, such as better monitoring of early defaults and claims, tracking mortgage information by loan servicer, and requiring a Government Accountability Office study on FHA. 

The bill is supported by a range of organizations including the National Urban League, the National Association of Realtors, the National Council of La Raza, the Mortgage Bankers Association, the National Community Reinvestment Coalition, and the National Association of Home Builders.

Read the bill»