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It looks like FHA mortgages are about to become more costly, now that the U.S. House of Representatives has approved a bill authorizing an increase in the annual premium paid by borrowers. 

By a vote of 406-4, the House on Thursday approved the HR 5074, FHA Reform Act, a bill designed to strengthen the agency’s finances and provide a number of other reforms. Among its main provisions is one allowing the FHA to increase the annual premium it charges borrowers to a maximum of 1.55 percent of the mortgage balance, up from 0.55 percent currently.   It’s estimated the bill would save the government $2.5 billion over five years, if enacted. It now goes to the Senate for consideration.   The bill also provides for tighter regulation of FHA-approved lenders, by giving the agency greater authority to investigate lenders with unusually high rates of default and withdraw certification from lenders who do not adhere to FHA guidelines.   “Families, neighborhoods and the nation’s housing market have been hurt by irresponsible lending and mortgage fraud schemes, and we need to make sure homebuyers are protected,” said U.S. Rep. Maxine Waters (D-Calif.), who introduced the bill. “FHA has already taken steps to increase its lender enforcement activities, and this bill empowers the agency to root out the bad actors while reserving the program for the lenders that follow the rules,”   Reaction from the lending industry was largely positive.  “FHA is playing a critical role in today’s housing market, helping to provide more affordable financing for borrowers looking to purchase or refinance a home. said Robert Story Jr., chair of the Mortgage Bankers Association, in a prepared statement. “The reforms contained in this bill will help stabilize FHA’s finances by allowing the agency to raise its annual premiums and better take corrective action against lenders who are putting the program at risk.”  The legislation is meant to address problems that emerged in the wake of the subprime mortgage crisis and provide enhanced protections for borrowers against questionable lending practices. Losses from mortgage defaults caused the FHA’s capital reserve to fall to below the congressionally mandated minimum of 2 percent of outstanding loans, to 0.53 percent last December.   In response, the FHA has already raised the upfront insurance premium it charges all borrowers to 2.25 percent of the loan amount, up from 1.75 percent previously. It also tightened its lending standards to reduce the likelihood of defaults.   With banks tightening their lending standards, the FHA mortgages have become increasingly popular as one of the few places most people can obtain a mortgage with as little as 3.5 percent down. FHA loans account for about 20 percent of all home purchases, according to figures from the Department of Housing and Urban Development, up from about 4 percent in the years immediately prior to the collapse of the housing market.

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