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Proposals to modernize the FHA heard on Capitol HillMortgagePress.comFederal Housing Administration
There are several proposals floating around Capitol Hill to
reform the Federal Housing Administration (FHA) in an effort to
increase homeownership opportunities for many Americans, such as
the Federal Housing Fairness Act of 2006 (SB 2597), introduced in
the U.S. Senate by Sen. Hillary Clinton (N.Y.), and the Expanding
American Homeownership Act of 2006 (HR 5121), introduced in the
House by Rep. Bob Ney (Ohio). Adding to the growing chorus for
change at the FHA, the U.S. Department of Housing and Urban
Development has announced a far-reaching proposal to modernize the
FHA and make it an important financing option in today's housing
market.
"FHA was created during the Depression to stimulate the housing
market at a time when homeownership simply wasn't a reality for
most people. FHA has been able to help over 33 million families
become homeowners since that time, but now it needs to be able to
adapt to today's marketplace. A new, modern-era FHA would offer
many hard-working Americans a variety of homeownership options that
are safer and at a fair price," said Assistant Secretary for
Housing/Federal Housing Commissioner Brian D. Montgomery in
testimony before the U.S. House Subcommittee on Housing and
Community Opportunity. He used the opportunity to put forward the
FHA Modernization Act, a legislative proposal that would enable the
FHA to reach deeper into the pool of prospective borrowers. Many of
these borrowers are currently willing to pay sub-prime rates to
become homeowners because they believe they have no other
option.
A.W. Pickel III, CMC, a past president of the National
Association of Mortgage Brokers and the owner of LeaderOne
Financial Corporation in Lenexa, Kan. also testified before the
subcommittee, stating, "Congress and this administration have made
homeownership a priority in our country. Unfortunately, today the
demand for homes continues to outpace new housing development and
sales of existing homes, causing escalation of home prices." Pickel
said that increasing access to FHA-insured loans would help low- to
moderate-income homebuyers take advantage of the safer and less
expensive financing options provided through the program. "Making
FHA more competitive will improve the service and products provided
by other lenders and insurers in the industry and help to restore
FHA loans to levels of previous years," he noted, adding that not
only would these loans be more attractive to consumers, but also to
mortgage brokers. Mortgage brokers originate more than two-thirds
of all mortgage loans nationwide, but find current FHA loan
products uneconomical because of burdensome audit and net worth
requirements.
The FHA Modernization Act would do the following:
• Create a new, risk-based insurance premium structure for
FHA that would match the premium amount with the credit profile of
the borrower. It would replace the current structure, in which
there is standard premium amount for all borrowers, while still
protecting the soundness of its insurance fund. FHA would have the
flexibility to charge higher-risk borrowers a slightly higher
premium and to charge a lower premium for low-risk borrowers.
• Eliminate the current statutory three percent minimum down
payment, reducing a significant barrier to homeownership. FHA's
existing down payment requirement does not meet the demands of
today's marketplace, where most first-time homebuyers put down two
percent or less. The new FHA would offer a variety of down payment
options.
• Increase and simplify FHA's loan limits. FHA's loan limit
in high-cost areas would rise from 87 to 100 percent of the
government sponsored-enterprise conforming loan limit and in
lower-cost areas from 48 to 65 percent of the conforming loan
limit. This change is crucial in today's housing market. In many
areas of the country, the existing FHA limits are lower than the
cost of new construction, eliminating FHA financing as an option
for buyers of new homes in those markets. The FHA has simply been
priced out of the market in other areas, such as California, where
FHA insured only about 5,000 home mortgages in all of 2005.
The legislation would also expand the availability of the Home
Equity Conversion Mortgage (HECM) program for the elderly by
eliminating the cap on the number of these loans that FHA can
insure. In addition, a new HECM for home purchase product would
enable the elderly to move from the family home to housing more
suitable for them as they age.
Other proposed reforms would make it easier for FHA to serve
purchasers of affordable housing such as manufactured homes and
condominiums. FHA would eliminate a feature of its manufactured
housing program that limits how much a lender can recoup from
mortgage defaults, providing greater incentive for lenders to make
these loans. The proposal would also increase the loan limits to
reflect the real cost of manufactured housing today. The
legislation would also eliminate burdensome statutory provisions
for insuring condominiums, which serve as one of the primary forms
of affordable housing for first-time homebuyers.
For more information, visit www.hud.gov.
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