September 19, 2007 (LPAC)--The House of Representatives yesterday passed by a wide margin HR 1852, a "comprehensive reform of the Federal Housing Administration," which is likely to be introduced in some form in the Senate today, by Sen. Christopher Dodd (D-CT). This Act would put the FHA in the subprime mortgage lending-insurance business, allowing it for the first time to insure mortgage loans which involve no initial downpayment, are issued to "high-risk" borrowers, and are what are colloquially called "jumbo loans," up to 125% of the average home price even in "high-cost states" like California, Florida, etc.

The ongoing rise in mortgage-loan interest rates, especially for jumbo loans, and the plunge in housing prices which is just now gathering steam, would involve the FHA in large losses if this program is passed and it attempts to implement it, as a few Congressmen have pointed out in hearings. But the initiating House Financial Services Committee press release announcing the bill's passage, issued Sept. 18, ignores this threat arising from the accelerating mortgage bubble collapse.

HR 1852 is originally a bill introduced in March 2007 by Financial Services Housing Subcommittee Chairwoman Maxine Waters (D-Calif.), but some of the most important provisions are amendments added in Chairman Barney Frank's (D-Mass.) mark-up just before the House vote.