Tags: Senate | FHA | amendments | bill

Senate Banking Committee Approves FHA "Solvency" Bill

Thursday, 01 Aug 2013 01:20 PM

By Robert Feinberg

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In a quickie, scripted meeting Wednesday, the Senate Banking Committee, chaired by Tim Johnson, D-S.D. approved S. 1376, a bill with the Orwellian title of The FHA Solvency Act of 2013.

The bill is designed to allow the Department of Housing and Urban Development to make some of the needed changes to the programs of the Federal Housing Administration (FHA) without waiting for the enactment of so-called comprehensive mortgage finance reform, a project that now receives the highest priority by both congressional banking committees but may never happen, because the mortgage lobby constituents of the Housing Industrial Complex are pretty satisfied to muddle through with the existing, flawed system with a few relatively cosmetic changes.

The plan calls for the full Senate to act on the bill next week and somehow get the House to pass it while the House Financial Services Committee remains totally deadlocked on housing finance reform.

Senate Banking plans to take up a broader bill after the August recess and is likely to produce a bipartisan, industry-friendly bill, perhaps as soon as this fall. It will then be up to the industry lobbies to prevail on the House to act. It certainly could happen, but the industry is poised to win either way at the public's expense.

Readers might enjoy viewing the short video and seeing how the formal work of the committee gets done after the senators and their staffs have worked out a choreographed production behind the scenes.

A Managers' amendment offered on behalf of the chairman and ranking member Michael Crapo, R-Idaho, serves as the vehicle for amendments that they are willing to accept. Other changes to the bill are in the works, but those that have not been worked out go through the formality of having the sponsors, when prompted by the chairman, go through the motions of offering the amendments, say a few words and then dutifully withdraw them with the express understanding that these issues will be worked out in their turn.

Thus, the marking process continues like a floating crap game until the bill is enacted, then it takes the form of so-called implementation where prickly FHA Commissioner Carol Galante will balk at following some of the provisions, and the sponsoring senators will try to force her to comply as the agency works to tilt the budget rules just enough to keep the agency in business.

At the end of the meeting, the Committee approved the bill by a roll call vote of 21-1, with Tom Coburn, R-Okla., a frequent dissenter on spending bills, leaving a proxy to vote no.

Among amendments that were incorporated in the bill were amendments by David Vitter, R-La., to curb the practice of FHA paying claims on loans that didn't qualify and to attach consequences to the fact that FHA has negative capital; an amendment by Robert Menendez, D-N.J., and Mark Kirk, R-Ill., to reduce the threat reverse mortgages pose to the health of both the FHA and borrowers; and an amendment by Elizabeth Warren, D-Mass., to promote the role of the FHA as a countercyclical market force.

Vitter is also working on amendments to require the FHA to report whether it intends to seek a transfer of funds from the Treasury, to impose a lifetime ban on users of FHA programs who achieve a given level of abuse, to require an annual stress test and to prescribe payment terms for the repayment of any borrowing from the Treasury.

Warren has amendments concerning loss mitigation and allowing homeowners to remove the requirement that borrowers be employed if they have income from other sources, such as veterans' benefits, disability and child support.

Joe Manchin, D-W.V., is seeking to clarify the circumstances in which lenders might be required to repurchase loans.

Jeff Merkley, D-Ore., will propose to protect homeowners from a practice known as "dual tracking," whereby lenders and servicers continue to pursue foreclosure even when they are supposed to be working with the borrower to modify the loan.

The bill appears to miss the need to lay off the risk of the FHA entirely on the industry and exit the government from a host of programs that benefit industry segments at public expense.

Perhaps this is why Coburn voted against it.

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