House Bill Encourages Increased Warehouse Lending

HR 3146, the “21st Century FHA Housing Act,” passed the House of Representatives on a voice vote Tuesday afternoon.

The legislation, sponsored by Rep. John Nadler (D-NJ,) makes a number of changes to existing FHA regulations which include giving the Secretary of Housing and Urban Development (HUD) more flexibility to appoint and compensate FHA personnel and to fund projects to upgrade FHA’s aging information systems.  The bill also exempts FHA from some provisions of the National Environmental Policy Act of 1969 when it insures a condominium with an undivided interest in the common areas and facilities which serve that condo.

The most important part of the legislation from the standpoint of real estate and mortgage professionals is Section 6 which encourages the Obama administration to provide support for warehouse lending to non-banks.

The bill says, in part, that Congress finds that warehouse lending to be a critical link in the housing finance chain, accounting for as much as 40 percent of all residential mortgage lending in the U.S. and 55 percent of FHA loans.  The availability of warehouse funding has declined almost 90 percent since 2006 to a current level estimated at approximately $20 to $25 billion.  The proposed legislation projects a shortfall in home mortgage availability of “hundreds of billions of dollars,” resulting in high borrower costs, reduced credit access, and impacting the recovery of the housing industry.  The effects, the bill states, could be felt perhaps as early as this year, unless Federal regulators promptly address the issue.

In response to this perceived deficiency the bill suggests that the Secretaries of Treasury, HUD and the Director of the Federal Housing Finance Agency (FHFA) use their existing authority under the Emergency Economic Stabilization and the Housing and Economic Recovery Acts which were passed last year to provide additional warehouse capacity to qualified lenders.  The assistance might include direct loan guarantees, credit enhancement, and other incentives.

Another provision of the legislation is the authorization of Foreclosure Avoidance Demonstration Programs to measure the effectiveness of alternative methods of dealing with loans in default.  Such measures could include short sales, deeds in lieu of foreclosure and could involve partial or full payment of FHA insurance benefits to the lender.

The bill had enjoyed the support of the National Association of Realtors, the National Association of Home Builders, and the Mortgage Bankers Association.  In a statement on its website the latter commented in part;  “Providing more resources for staffing and technology at FHA will allow that agency to continue to play its critical role in helping borrowers who may not have sterling credit or are unable to make a large down payment.  FHA needs to be able to hire and retain top quality staff and utilize 21st century technology if it is going to meet the growing demand for its products and adequately manage risks to its programs.

“And finally, we are gratified to see Congress go on record in stating that HUD, Treasury and the FHFA ought to use their existing statutory and regulatory authority to help solve the crisis in warehouse lending.  Independent mortgage lenders, who rely on warehouse lending, provide between 25 and 40 percent of all mortgage financing.  Without adequate warehouse lines, these lenders may cease to exist, drawing precious capacity out of the mortgage market at a time when we need mortgage financing more than ever."

The House also passed HR 3527, the "FHA Multifamily Loan Limit Adjustment Ave of 2009," on Tuesday.  This bill, sponsored by Rep. Anthony Weiner (D-NY), raises the limit of the maximum mortgage loan amounts available for FHA insurance in elevator type structures.  The legislation covers condominiums, rental housing, cooperative housing, rehabilitation and neighborhood conservation housing, housing for moderate income families, displaced families, and the elderly.  Insurance mortgage limitations may increase by as much as 50% of the insurable amounts currently specified for each unit size.

Both House bills now head to the Senate for consideration.