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Reform Would Make FHA a Subprime Market Alternative
The nation’s home builders are closely watching congressional efforts to implement reform of the Federal Housing Administration's single-family mortgage insurance programs to provide a viable alternative to the subprime market for working families who want to buy homes.
In recent years, the FHA has been unable to respond fully to borrowers’ needs because of statutory and regulatory constraints, and the ongoing turmoil in the subprime market has greatly increased the urgency for enactment of FHA revitalization legislation.
“Improving the FHA program would be highly effective and an appropriate means for Congress to address problems in the subprime mortgage market,” said NAHB President Brian Catalde.
Under the leadership of Reps. Barney Frank (D-Mass.) and Maxine Waters (D-Calif.), H.R. 1852, the “Expanding American Homeownership Act of 2007,” was voted out of the Financial Services Committee on May 3 for consideration by the House of Representatives. This bill contains provisions supported by NAHB to improve and streamline the FHA so it can more effectively serve single-family home buyers and be more responsive to market needs.
On the Senate side, many of NAHB’s key FHA modernization priorities are included in draft legislation that was introduced by the Senate Banking Committee prior to its August recess. Committee chairman Chris Dodd (D-Conn.) is expected to mark up the bill when Congress returns in September.
If granted proper authority by Congress, Catalde said that FHA’s single-family mortgage insurance programs could include fixed-rate, adjustable-rate and hybrid adjustable-rate mortgage loans to borrowers with limited cash reserves or slightly tarnished credit on far better terms than the subprime loans that are so frequently in today’s news.
FHA’s share of the market fell from 18% in 1990 to less than 4% in 2006. FHA’s descent steepened in the latter stages of that period as competing subprime loan programs lured many borrowers into less advantageous mortgages.
To give the FHA the tools it needs to fulfill its mission more effectively, NAHB has urged Congress to take the following actions:
- Grant the FHA authority to establish greater flexibility in setting downpayment requirements for its single-family programs.
- Revise FHA requirements for condominium loans, which are often burdensome and differ significantly from mortgage loans for detached single-family homes.
- 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.
- Permit the FHA to extend the maximum loan maturity to 40 years to enable borrowers to reduce their monthly mortgage payments.
- Increase the current limit for FHA-insured mortgages to enable deserving potential buyers to purchase homes in high-cost areas.
- Give the secretary of the Department of Housing and Urban Development increased flexibility to increase the FHA multifamily mortgage loan limits in high-cost areas.
- Allow the FHA to insure more “reverse mortgages” and increase the maximum loan amount.
To read the House bill, click here and enter H.R. 1852 in the box at the center of the page.
For more information, e-mail Scott Meyer at NAHB, or call him at 800-368-5242 x8144.
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