	Introduction

The Federal Housing Administration (FHA), an agency of the Department of Housing and Urban Development (HUD), insures private mortgage lenders against the possibility that a borrower will default on his or her mortgage. FHA insurance is intended to encourage lenders to offer affordable mortgages to certain eligible borrowers who might find it difficult to obtain a conventional (that is, non-government-insured) mortgage, such as households with small down payments. Borrowers also pay fees, called premiums, in exchange for the insurance. The money that it brings in from the fees charged to borrowers and any amounts that it recoups from the sale of foreclosed homes is intended to cover the costs of any claims paid to lenders when mortgages default. However, in recent years increasing foreclosures on FHA-insured mortgages and factors such as house price declines have put pressure on the single-family mortgage insurance fund, known as the Mutual Mortgage Insurance Fund (MMI Fund). At the end of FY2013, FHA was required to take a $1.7 billion mandatory appropriation from Treasury to ensure that it would have sufficient funds to cover all of its expected future losses on the loans that it was currently insuring. FHA did not need any funds from Treasury for this purpose in FY2014. FHA has made a number of policy changes in recent years to attempt to improve its financial condition. Congress has also been considering additional reforms to FHA. Some of the changes that FHA has initiated over the past several years involve increasing the premiums that borrowers pay for FHA-insured mortgages and strengthening the underwriting guidelines for its single-family program. In recent years, FHA has taken a number of steps to increase its oversight of FHA-approved lenders and otherwise manage its counterparty risk. Such provisions have been included in some FHA reform legislation that has been considered by Congress, discussed in the " Legislative Proposals in the 113th Congress " section of this report. Such proposals have included additional changes in underwriting or eligibility requirements to reduce the risk on FHA-insured loans and changes to FHA's capital requirements to require it to hold more funds in reserve to pay for unexpected losses. Two additional bills related to FHA were ordered to be reported out of committee in the 113 th Congress: the FHA Solvency Act of 2013 ( S. 1376 ), which was reported in the Senate, and the Protecting American Taxpayers and Homeowners (PATH) Act ( H.R. 1145 and S. 1376 only address FHA, the PATH Act includes FHA provisions as part of a broader bill to reform the housing finance system. H.R. Other provisions would have made additional, more far-reaching changes to FHA, including making it an independent agency, taking steps to more narrowly target FHA insurance, and reducing the amount of FHA's insurance coverage and increasing the role of private capital. FHA's financial reports would have been required to use accounting methods that are used in the private sector.
The Federal Housing Administration (FHA), an agency of the Department of Housing and Urban Development (HUD), insures private mortgage lenders against losses on eligible mortgages. If a borrower defaults on an FHA-insured mortgage, FHA will repay the lender the remaining amount owed. FHA insurance is intended to encourage lenders to offer mortgages to households who might otherwise have difficulty obtaining a loan at an affordable interest rate, such as households with small down payments. Borrowers pay fees, called premiums, in exchange for the insurance, and these fees are supposed to pay for the costs of any mortgage defaults.
In recent years, increasing foreclosure rates and falling house prices have strained FHA's single-family mortgage insurance fund, the Mutual Mortgage Insurance Fund (MMI Fund). At the end of FY2013, FHA received $1.7 billion from Treasury to ensure that it had sufficient funds to cover all of its expected future losses on the mortgages that it was currently insuring. This was the first time that FHA had ever required funds from Treasury for this purpose for its single-family program.
In response to concerns about the financial condition of the MMI Fund, FHA has taken a number of steps in recent years to attempt to improve its financial position. These changes have included increasing the fees that it charges to borrowers, adjusting its underwriting standards, and making changes to the way that it manages delinquent mortgages and foreclosed properties. FHA has also requested additional authorities from Congress, such as improving its ability to hold FHA-approved lenders accountable for the mortgages they submit for FHA insurance. These authorities have been included in legislation that Congress has considered but have not been enacted to date.
Congress has also been considering additional reforms to FHA. Proposed reforms include increasing the amount of capital that FHA is required to hold in reserve to pay for unexpected increases in future losses and specifying actions that FHA must take if its capital reserves fall below certain thresholds. Some of these proposed additional reforms have been included in several stand-alone bills that have been introduced in recent Congresses, including H.R. 1145 and S. 1376 in the 113th Congress.
Additionally, reforms to FHA are being considered in the context of broader reforms to the housing finance system. One housing finance reform bill in the 113th Congress, the Protecting American Taxpayers and Homeowners (PATH) Act (H.R. 2767), would have made more far-reaching changes to FHA than those that have been included in other bills. These changes would have included limiting FHA-insured mortgages to only low- and moderate-income borrowers and first-time homebuyers in most circumstances, reducing the share of a mortgage that FHA can insure, and requiring greater risk-sharing with the private sector. The PATH Act would also have removed FHA from HUD and made it an independent agency.