Legislative Updates

Congressional Committees to Examine Credit Rating Agencies
On Wednesday, September 26, the Senate Banking Committee will hold a hearing on the role and impact that credit rating agencies have had on the subprime mortgage market. On Thursday, September 27, the House Financial Services Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises (GSEs) will hold a hearing on the role of credit rating agencies in the structured finance market. The credit rating agencies play an important role in capital markets generally, and specifically in assessing the creditworthiness of mortgage-backed securities (MBSs) and collateralized debt obligations (CDOs). The hearings have been called to examine questions related to assessing the credit quality of financial instruments, understanding the conflicts of interest of credit rating agencies and reviewing their role in developing new debt products.

FHA Reform Advances: House Passes Legislation; Senate Banking Committee Approves BillOn Tuesday, September 18, the House passed H.R. 1852, the "Expanding American Homeownership Act of 2007," by a vote of 348-72. The House bill would create 40-year FHA-insured mortgages, risk-based premiums; allow zero down for first time borrowers; and lift the cap on Home Equity Conversion Mortgages (HECM). During floor consideration, an amendment was adopted that would increase FHA loan limits to 125 percent of an area's median home price and give the Department of Housing and Urban Development (HUD) Secretary the discretion to bump that level by $100,000 during periods of crisis in the home-mortgage market.

FHA Issues Notice on Planned Implementation of Risk-Based Premiums
On Thursday, September 20, the Federal Housing Administration (FHA) released a notice of its planned implementation of risk-based premiums. These are designed for mortgage lenders to offer borrowers an FHA-insured product that provides a range of mortgage insurance premium pricing, based on the risk the insurance contract represents. Comments on this planned implementation are to be submitted by October 22. A meeting of MBA's FHA Advisory Committee will take place next Wednesday, September 26, to review the proposal and discuss options for a response.

OFHEO Raises Portfolio Caps for Fannie Mae and Freddie Mac
On Wednesday, September 19, Office of Federal Housing Enterprise Oversight (OFHEO) Director James Lockhart announced that OFHEO would provide Fannie Mae and Freddie Mac (GSEs) additional flexibility in managing their mortgage portfolios. This move allows the GSEs to purchase at least an additional $20 billion in mortgages or MBS by changing how the portfolios are measured; increasing the cap on each GSE to $735 billion; and allowing the cap to grow at a rate of 2 percent annually. OFHEO is requiring the GSEs to report on market conditions and make a monthly report on purchases of nonprime and multifamily loans.