One of the other key terms of the bill requires that the borrower could not have lied on the original loan application. Income and assets cannot have been overstated.

That is debatable. The exact phrase used in the bill is as follows

“The mortgagor shall provide a certification to the originator of the mortgage that the mortgagor has not knowingly, or willfully and with actual knowledge furnished material information known to be false for the purpose of obtaining the existing mortgage or mortgages”

so, for starters, there’s no way for FHA to verify this certification, (maybe the borrower did earn $100,000 back in 2005 but he lost his job since, and now he makes $30,000?) and there’s no requirement that anyone goes and digs up old tax returns as proof.

Furthermore, even if income/assets were overstated, there is a valid defense, that is “I didn’t do it, I don’t know how that $100,000 annual income figure got on the application, it must be that evil agent, all I did was sign on the dotted line, I wasn’t really paying attention to the fine print”.