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
"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
"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
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
Specifically, the bill includes the following important
• 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
• 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
• 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
"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 www.house.gov.