On December 15, Senator David Vitter (R-LA) introduced S. 1997, the FHA Bailout Protection Act. The bill would prohibit the federal government from rescuing the Federal Housing Administration if its Mutual Mortgage Insurance (MMI) Fund suffers inadequate capital reserves to pay out claims made to the FHA.
If the MMI Fund’s capital ratio goes below 2%, the bill would also require the FHA to increase insurance premiums for mortgages insured by the MMI Fund, require more stringent underwriting standards for these mortgages, and would increase the amount that must be paid on each FHA-insured mortgage. Currently, the reserve fund is at .24% of the overall value of the loans insured by the MMI Fund. By statute, the MMI Fund is supposed to have a capital reserve ratio of at least 2%.
The bill has seven Republican cosponsors and was referred to the Senate Committee on Banking, Housing and Urban Affairs.