Congress granted the FHA loan program an exemption that could put the federal mortgage loans at risk. The American Banker reported that the FHA loan volume could see increased market-share boost from regulatory reform, because of exemptions that are tied to FHA mortgage loans.  FHA home mortgages are insured by the government and are fully exempt from the recent landmark legislation risk-retention requirement.  The mortgage reform bill was finalized by the conference committee last week requires mortgage originators to retain at least 5% of the credit risk in loans they securitize unless the assets meet a “qualified mortgage” test. All loans backed by the FHA, the Department of Veterans Affairs or the Rural Housing Service will automatically meet that test.  Senior director of industry relations for IMARC David Kittle said, “FHA loan programs gets a pass.”  Kittle continued, “Does it give them an advantage? Well, sure. Anytime you are carved out of something that can be onerous for everybody else, then certainly you benefit.”

Most home mortgages securitized through Fannie Mae and Freddie Mac will also be eligible for securitization without risk retention. Seeing that Fannie and Freddie are holding over 95% of the mortgage notes in America, this hardly seems like reform.  Glen Corso, managing director of the Community Mortgage Banking Project said “I believe chances are very good that in the future almost every mortgage that Fannie and Freddie either buy or securitize will be qualified mortgages under the risk-retention provision.”   Without an exemption, mortgage companies will have more obstacles when they sell home loans to Fannie or Freddie. Clearly this gives FHA lenders an advantage but doesn’t this make FHA home loans more of a risk?  FHA mortgage rates are at record lows and the FHA defaults have been decreasing, so why Congress would give the Federal Housing Administration a pass on risk is beyond me.  If the FHA loans fail, the American taxpayers are on the hook, thus jeopardizing the FHA loan program.