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NAMB opposes elimination of YSP, warns of harm to consumers

National Mortgage Professional
Nov 25, 2007

House passes comprehensive FHA reformMortgagePress.comFHA mortgage reform The U.S. House of Representatives overwhelmingly passed HR 1852, the Expanding American Homeownership Act of 2007, in a 348-72 vote. This will revitalize the Federal Housing Administration (FHA), a federally insured loan program that for more than 60 years has been a reliable source of affordable fixed-rate mortgage loans, especially for first-time homebuyers. According to House Committee on Financial Services Ranking Member Spencer Bachus, FHA's share of the mortgage market has been steadily declining in recent years, falling from almost 20 percent 10 years ago to about five percent today. This sharp drop in FHA's market share resulted largely from the growing popularity of sub-prime mortgages, as more borrowers opted for loans featuring zero downpayments and introductory teaser rates far lower than what was available through FHA. The difficulties being experienced by many sub-prime borrowers as those initially low interest rates reset at much higher levels offer FHA an opportunity to re-establish its standing in the marketplace as a safe, low-cost alternative for American homeowners. "This legislation will help revitalize FHA, and that's good news for consumers," said National Association of Mortgage Brokers President George Hanzimanolis, CRMS. "NAMB urges the Senate to act promptly and send this important measure to the president." The measure, originally introduced by Rep. Maxine Waters, chair of the Subcommittee on Housing and Community Opportunity, and Barney Frank, chair of the Financial Services Committee, will enable FHA to serve more sub-prime borrowers at affordable rates and terms, recapture borrowers that have turned to predatory loans in recent years, and offer refinancing loan opportunities to borrowers struggling to meet their mortgage payments in the midst of the current turbulent mortgage markets. FHA Commissioner Brian Montgomery welcomed the House action despite concerns that the House bill raises the FHA loan limits too high. Montgomery noted that the administration strongly opposes such a loan limit hike, but said he expects the Senate bill to be more compatible with the administration's position. "We look forward to seeing what the Senate does, and we will try to work out those differences in the conference committee," said Montgomery. "There is an affordable housing crisis in America. In recent months, that crisis has exploded beyond the poorest renters and homeowners to threaten the domestic economy. HR 1852 is a necessary step in walking us back from the brink and in the direction of meeting the housing needs of all Americans," said Waters. Congress has an opportunity to restore confidence and stability in the mortgage market and help countless homeowners facing the prospect of foreclosure, NAMB Immediate Past President Harry Dinham, CMC said, but it should act cautiously, thoughtfully and deliberately when considering changes that will affect the ability of consumers to obtain affordable credit and remain in their homes. "A revitalized FHA program will help future homeowners realize the dream of homeownership, and will prevent many first-time and inexperienced homebuyers from being pushed into loans that are unaffordable or difficult to understand," said Frank. "The bill we passed ... will help people all across America because we have enacted provisions to allow the FHA to insure loans in high cost areas." HUD Secretary Alphonso Jackson believes that the reform will "serve as a starting point to bring good news to families who need a safe, fair and affordable FHA alternative to the exotic sub-prime market. Now more than ever, Americans want financially sound mortgage options that won't turn the dream of homeownership into a nightmare." Specifically, the bill includes the following important provisions: • Lower downpayments: Authorizes zero and lower downpayment loans for borrowers that can afford mortgage payments, but lack the cash for a required downpayment. • Housing counseling: Authorizes more than double the current funding level for housing counseling to help sub-prime homebuyers and borrowers late on mortgage loan payments. • Sub-prime borrowers: Directs FHA to provide mortgage loans to higher risk (but qualified) borrowers without authorizing unnecessary fee hikes on such borrowers. • Reverse mortgages: Enhances the FHA reverse mortgage loan program to help seniors pay for health and other expenses by removing the loan cap to avoid program shutdowns, raising loan limits and by reducing the maximum fee lenders can charge for these loans. • Multi-family loans: Raises FHA multi-family loan limits so these loans can fully fund construction costs in high-cost areas and enhances sale of foreclosed FHA rental housing loans to localities so that affordable housing can be maintained in local communities. • Affordable housing fund: Authorizes up to $300 million a year from the bill's excess profits for affordable housing, instead of returning such funds to the General Treasury. • Higher loan limits: Adopts the Frank/Miller/Cardoza amendment that would raise FHA single-family loan limits, which now bar loans above 95 percent of the median home price in each local area and shut FHA out of higher cost home markets. The amendment raises the FHA loan limit in each area to the lower of 125 percent of the local area median home price or 175 percent of the national government-sponsored enterprise (GSE) conforming loan limit. The amendment also retains the bill's provision for a nationwide FHA loan floor of 65 percent of the GSE conforming loan limit, and gives the U.S. Department of Housing and Urban Development authority to raise these loan limit amounts by up to $100,000 "if market conditions warrant." In addition, the House adopted an amendment to the bill to direct FHA to make available refinancing loans to existing qualified homeowners who are in default or at risk of default due to rate resets or mortgage market conditions, and to authorize lower downpayments for such purpose. The amendment also includes provisions to address problems arising from inflated appraisals. "The FHA is a critical partner for [an] industry that needs to be revamped, which is why FHA modernization has long been a top MBA priority," said MBA Chair John M. Robbins, CMB. "The FHA needs to have the flexibility to continue to evolve to meet consumer demand in a changing mortgage market." To view a copy of the bill, visit
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