Builders Cite Need for FHA Single-Family Reform
NAHB Vice President Bill Killmer, far right, testifies on FHA reform.
Photo by Herman Farrer
NAHB on April 19 called on Congress to enact legislation that would reform and revitalize the Federal Housing Administration's single-family mortgage insurance programs.
Testifying before a subcommittee of the House Financial Services Committee, Bill Killmer, NAHB's group vice president for advocacy, said that statutory and regulatory constraints have limited the FHA's ability to respond to the needs of borrowers, resulting in many home buyers ending up with inappropriate mortgages.
"Had the FHA been in a better position to respond to changing market forces in the past few years, the subprime situation might not be as severe as it is today," said Killmer.
If granted the proper authority by Congress, Killmer said that the FHA's single-family mortgage insurance programs could insure fixed-rate, adjustable-rate and hybrid adjustable-rate mortgage loans to borrowers with limited cash reserves or slightly tarnished credit.
"And this could be done on far better terms than the subprime loans that are making adverse headlines daily," he added.
As FHA's share of the market fell from 7% in 1995 to less than 2% in 2005, the subprime loan share surged to 20%.
"All too often, significant differences between FHA requirements and those for conventional mortgages have been viewed by lenders, appraisers and others as a disincentive to use FHA programs," said Killmer. "And the FHA's unique and often burdensome requirements have caused many home builders to avoid using its programs to build homes — including condominiums — that otherwise would have been well-suited to borrowers who planned to use FHA-insured mortgage loans."
With two FHA revitalization proposals before the subcommittee, H.R. 1852 and H.R. 1752, Killmer told lawmakers that NAHB does not favor one bill over the other, but instead seeks "comprehensive FHA reform — period!"
He called on Congress to act quickly to empower FHA with the right tools to respond to the needs of borrowers and enable more working families to become home owners. Specifically, NAHB is urging Congress to take the following actions:
- Increase the current limit for FHA-insured mortgages to enable deserving potential home buyers to buy homes in high-cost areas. NAHB supports proposals to increase FHA's local loan limits to 100% of an area's median home price, up from 95% under the current statute, and to increase the minimum FHA mortgage amount to a more meaningful level.
"Boosting these limits would provide more choices for home buyers who wish to use FHA mortgage programs to finance their home purchases," said Killmer.
- Allow the FHA to establish a risk-based mortgage insurance premium pricing structure that rewards higher-risk borrowers who establish a track record of timely payments.
- Grant the FHA authority to establish greater flexibility in setting downpayment requirements for its single-family programs as long as they are operated on an actuarially sound basis.
- Ensure that sufficient funds are appropriated on an ongoing basis for housing counseling.
- Permit the FHA to extend the maximum loan maturity to 40 years to enable borrowers to reduce their monthly mortgage payments. "Unlike the interest-only loans that are currently popular, an FHA-insured mortgage loan with a 40-year maturity would ensure that some part of the borrower's monthly payment is used to reduce the outstanding loan balance," Killmer said.
- Revise FHA requirements for condominium loans, which are often burdensome and differ significantly from mortgage loans for detached single-family homes.
- Remove the existing 275,000 loan volume cap on FHA's Home Equity Conversion Mortgages, or "reverse mortgages," while increasing the maximum loan to the Fannie Mae/Freddie Mac conforming loan limit. This would help more seniors who are at least 62 years old access the equity in their homes without having to make mortgage payments until they move out.
- Provide the HUD secretary additional flexibility to increase the FHA multifamily mortgage loan limits in high-cost areas. "With severe shortages of affordable rental housing in most of the high-cost markets, this change would enable developers to provide much-needed new affordable housing to low- and moderate-income families," Killmer said.
To read legislation, click here and enter the bill number in the box at the center of the page.
For more information, e-mail Michael Strauss at NAHB, or call him at 800-368-5242 x8252.
Mark Your Calendar for the 2007 NAHB Legislative Conference
The 2007 NAHB Legislative Conference provides a unique opportunity for builders to speak directly with their members of Congress and to take a stand on the issues that affect their businesses and bottom line.
The conference is on Wednesday, June 6 and is a day-long event that coincides with the NAHB spring board meeting in Washington, D.C.
Attending the 2007 Legislative Conference offers NAHB members an unparalleled opportunity to:
- Lobby members of Congress to protect your business
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- Learn the latest policy developments on the key issues affecting your business
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- Galvanize a united front on Capitol Hill
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