FHA Reform Act of 2010

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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.

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.

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