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Senators unveil plan to bolster Federal Housing Administration finances

A single family home is shown for sale in Encinitas, California May 22, 2013. REUTERS/Mike Blake
A single family home is shown for sale in Encinitas, California May 22, 2013. REUTERS/Mike Blake

WASHINGTON (Reuters) - The leaders of the Senate Banking Committee on Monday released a draft bill aimed at bolstering the finances of the Federal Housing Administration, which has faced mounting losses from mortgage defaults.

Senators Tim Johnson, a Democrat and the chairman of the committee, and Mike Crapo, the top Republican on the panel, unveiled the draft they said would help stabilize the U.S. mortgage market by strengthening the finances of the FHA, which insures about a third of U.S. mortgages worth $1.1 trillion.

The FHA faces a projected shortfall of $16.3 billion due in part to defaults on mortgages it guaranteed from 2007 to 2009 as the housing bubble deflated.

The bill contains "effective reforms that put FHA on a path toward improving its unsustainable financial condition," Crapo said in a release.

Reforms in the draft include minimum annual mortgage insurance premiums to be paid by homeowners to improve the long-term solvency of the FHA. The agency was formed during the Great Depression mainly to help low- to moderate-income and first-time home buyers get access to mortgage credit.

The premium levels would be re-evaluated annually to ensure they cover expected risk from loans the government insures to maintain the FHA capital reserve ratio.

The draft bill did not say how much revenue the premiums would provide FHA. It aims to make sure the FHA has enough of a capital cushion to cover future losses and avoid drawing from taxpayer funds for the first time in the agency's nearly 80-year history.

The bill would also require the Department of Housing and Urban Development to consolidate guidelines for lenders and servicers and provide them requirements, policies and procedures that apply to FHA-backed loans.

It remains unclear whether the bill has enough votes to clear the Senate. The two senators have indicated they want to pas it through committee before Congress leaves for the August recess.

Last week, Republicans in the House of Representatives unveiled sweeping draft legislation that would revamp FHA, but also wind down housing finance companies Fannie Mae and Freddie Mac

(Reporting by Margaret Chadbourn and Timothy Gardner; Editing by Lisa Shumaker)

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