The Federal Housing Administration (FHA) has received congressional approval to raise borrowers’ annual premiums for single-family mortgage insurance.

House Resolution (HR) 5891 passed the Senate late Wednesday. It cleared the House last Friday, and now heads to President Obama’s desk for final sign-off.

The bill allows FHA to increase the statutory cap of the annual fee charged for federal mortgage insurance three-fold, from 0.55 percent to 1.55 percent.

On April 5th, FHA raised borrowers’ up-front mortgage insurance premiums from 1.75 percent to 2.25 percent – a move that did not require congressional approval. Now that the agency has been granted the authority to raise the annual fees assessed, FHA has said it will shift some of the premium increase from up-front to the annual cost, which is paid over the life of the loan instead of at the time of closing.

FHA Commissioner David Stevens has indicated that he may not need to raise premiums to the maximum.

Robert Story, Jr., chairman of the Mortgage Bankers Association (MBA) says a small increase in the annual premium, coupled with a decrease in FHA’s upfront premium, will help stabilize FHA while lowering closing costs for many borrowers.

The premium increases give FHA a means of increasing its capital reserve funds, which as of the end of fiscal year 2009 had deteriorated to its lowest level in the agency’s 75-year history. FHA is required by law to keep its capital reserve nest egg at a minimum of 2 percent of all the mortgages it insures against default. But rising delinquencies and the stress of the nation’s housing woes pushed the agency’s reserve purse to just 0.53 percent last year.

A larger FHA reform bill – which includes not only the premium increase, but also gives FHA greater enforcement authority against lenders who originate bad loans – is currently on the legislative table. And although the House had already approved the full-length reform bill, lawmakers pulled out the provision for the premium increase and made it a separate measure to speed its passage before the Senate recesses on August 7.

Both chambers of Congress also passed a companion standalone bill that addresses FHA’s multi-family business, which is being sent to the president along with HR 5891.

House Resolution 5872 increases FHA’s commitment authority for its multifamily insurance programs by $5 billion for the remainder of the fiscal year. Without this increase, FHA would have exhausted its current authority sometime in mid-August and would have been forced to stop issuing any commitments to insure the loans in their current pipeline of applications until the next fiscal year, which begins October 1st.

“FHA’s multifamily programs have been a critical source of funding to build and renovate multifamily and rental housing during the recent credit crunch,” Story commented. “MBA has been working tirelessly with officials at FHA and on Capitol Hill to help keep the program up and running and we are gratified that Congress acted before a shutdown became reality.”

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The nation’s REO stock fell 0.6 percent in May to 524,000 properties, according to analysis released by Barclays Capital.

In addition, the research firm estimates that housing’s shadow inventory – which Barclays defines as the supply of homes that are 90 or more days delinquent or in the process of foreclosure, meaning they are nearing REO status – declined by 2.3 percent to 4.02 million properties.

A separate study released by Clear Capital supports the assumption that indeed, there are fewer REOs influencing the market. The real estate valuation firm reports that REO saturation – the percentage of bank-owned homes sold as compared to all properties sold – is steadily declining.

Data from Clear Capital shows that REO saturation dropped 22.7 percent nationally during the May to July period. The company says that’s nearly 20 percentage points less than the REO saturation peak hit back in the first quarter of 2009.

Fewer REOs, coupled with a boost in overall sales from the homebuyer tax credit, have given home prices a lift, according to Clear Capital’s study.

Home prices nationally gained 7.9 percent during the May to July rolling quarter, Clear Capital reports. On a year-over-year basis, prices were up 8.1 percent as of the end of July, but the analysts at Clear Capital note that the latest annual reading represents a slow-down from the 8.8 percent yearly increase recorded in June.

“While quarterly gains are showing strong momentum across the country, these recent price advancements are just the latest turn in a volatile housing market that has seen ‘W’ shaped price trends over the last two years,” said Dr. Alex Villacorta, Clear Capital’s senior statistician.

Villacorta said that despite the up and down behavior of prices since the worst of the housing downturn, national prices are still up 13.6 percent from the trough, providing a cushion against potential future declines and the start of a double-dip.

Future price declines are exactly what’s being forecast. The analysts at Barclays said in their report, “With the expiration of the homebuyer tax credit, we expect the elevated pace of distressed liquidations to depress prices by 7 percent over the next three quarters.”

In an appearance on NBC’s “Meet the Press” over the weekend, former Federal Reserve Chairman Alan Greenspan added his own caveat to the mix. Greenspan warned that a decline in home prices could upset the modest economic recovery, with that double-dip spreading beyond just property values and sending the United States down another sharp recessionary slope.

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“We find that the data as reported in this table are misleading and fail to capture the full magnitude of redefaults from these modifications,” Barclays said.

According to Treasury’s assessments, the redefault rate (90 or more days past due) for homeowners in permanent modifications for at least six months is 1.7 percent. The report states that fewer than 6 percent of the permanently modified loans at the six-month mark are 60 days past due.

Treasury’s table outlining the performance status of modified loans, on page 3 of the HAMP progress report, shows loans that are 60-plus and 90-plus days delinquent at the end of 3,6, and 9 months by quarter of modification. The report also states that 8,628 loans have been cancelled from the permanent HAMP modification stage due to the borrower’s failure to fulfil payment obligations. Digging farther into the delinquency buckets, Barclays estimates that 8,205 permanently modified loans have fallen behind on the payments by at least 60 days.

The latest figures from the Office of the Comptroller of the Currency (OCC) put the redefault rate of mortgages modified by the nation’s 11 largest servicers – incorporating proprietary mod programs – at 57 percent.

A recent study by Fitch Ratings projects HAMP-modified loans will redefault at a rate of 55 to 75 percent. But Treasury officials say the program guidelines ensure

restructured mortgage payments are truly affordable for participating borrowers, and as a result they stand a better chance of continued success.

Homeowners in permanent modifications are receiving a median payment reduction of 36 percent, more than $500 per month, according to the Treasury’s July report. Homeowners in permanent modifications are guaranteed lower payments for five years as long as they remain current. After five years, then the loan structure is adjusted to offer fixed terms that lock in today’s low interest rates for the life of the mortgage.

Servicers added 51,205 modified loans to the permanent column during the month of June, a 15 percent increase since the previous report. Treasury says growth in permanent modifications has averaged more than 50,000 a month over the last six months. Currently there are 389,198 active permanent mods in the program.

Servicers report the number of homeowners receiving restructured mortgages has increased to a new total of 2.95 million, including more than 1.2 million homeowners in HAMP trials and nearly 400,000 benefitting from FHA loss mitigation activities.

However, cancellations from HAMP trial plans remain high, as many borrowers who received temporary modifications have not been able to verify their income or have missed trial payments.

As of the end of June, 520,814 HAMP trials had been cancelled – more than have been converted to permanent status.

However, data from the eight largest servicing shops show that just over 50 percent of homeowners not granted a permanent HAMP mod are offered a proprietary modification or are able to bring their loan current. Fewer than 2 percent have gone to foreclosure sale, while 2.4 percent, or 8,245 borrowers, have accepted a short sale alternative.

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Senate Majority Leader Harry Reid (D-Nevada) proposed the extension, and the amendment itself was approved by a large margin last week as an add-on to H.R. 4213, the American Jobs and Tax Loopholes Act.

Republican senators, though, defeated the full measure on Thursday, for the third time, when Democrats moved to end debate and push it to a chamber vote. Reid has indicated that after three unsuccessful attempts, he plans to drop the matter altogether.

The amendment would have extended the tax credit deadline for closing on a home purchase to September 30. The current deadline is June 30.

The National Association of Realtors (NAR) says some 180,000 homebuyers who signed contracts in time will not be able to make the June 30 closing deadline, simply because of the time it takes for lenders to complete transactions. The trade group estimates that 75,000 of those who will miss out on the tax break are buyers of distressed properties.

NAR says its members have reported that as many as one-third of qualified applicants have already been notified by lenders that their mortgages will not close before June 30, due to the sheer volume of applications in the pipeline.

The tax credit amendment was just one piece of the multi-faceted bill that was primarily intended to extend unemployment benefits for Americans out of work for more than six months.

Republicans rallied against the measure on the grounds that it would have added $30 billion to the “already staggering national deficit,” they said.