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FHA Legislation Passes

Bush, NAMB at odds over mortgage broker provision

September 19, 2007


Reform legislation for Federal Housing Administration programs made it over the first major hurdle -- overwhelmingly passing in the U.S. House of Representatives. The bill raises FHA-insured loan limits, reduces downpayments and removes the loan cap on home equity conversion mortgages. But President Bush is at odds with one trade group about a provision that makes it easier for mortgage brokers to become FHA approved.

"We're very pleased it went through," George Hanzimanolis, president of the National Association of Mortgage Brokers, told MortgageDaily.com. "It opens more doors so that FHA mortgages can be offered to more consumers."

And Mortgage Bankers Association Chairman John Robbins commended the House for its passage of FHA reform by a vote of 348 to 72, noting, "The FHA is a critical partner for industry that needs to be revamped, which is why FHA modernization has long been a top MBA priority."

Legislative action for FHA reform now moves to the Senate Committee on Banking, Housing and Urban Affairs.

"Chairman Chris Dodd has said," Jamie McInerney from the staff of Rep. Dennis Cardoza (D-CA) told MortgageDaily.com, "that he's interested in pursuing the issue. So his committee is working on legislation and we expect the Senate to act soon."

Sen. Dodd could not be reached for comment late Tuesday.

Rep. Cardoza, along with Rep. Barney Frank (D-MA) and Rep. Gary Miller (R-CA), introduced the amendment to the legislature that raises the maximum loan amount for multi-family buildings as well as single-family homes.

Cardoza said the legislation "puts FHA back in business."

"A revitalized FHA program," said Rep. Frank, chairman of the House Financial Services Committee, "will help future homeowners realize the dream of homeownership and will prevent many first time and inexperienced home buyers from being pushed into loans that are unaffordable or difficult to understand."

The legislation allows the FHA to insure loans in high cost areas, he noted.

Rep. Miller pointed out that FHA mortgages declined 99 percent in his district from 2000 to 2005 and he blamed it on high housing costs.

"The bottom line," he said, pointing to the risky loan products that many in high cost areas have been forced to take, "is that to make the FHA program a viable mortgage option, we must ensure that the program's products are available across the country and that they meet the needs of borrowers."

But with the legislation approved Tuesday, he said, "We can remove the impediments to the utilization of FHA."

The legislation, formally H.B. 1852, The Expanding American Homeownership Act of 2007, also extends the maximum length of an FHA to 40 years from 35, makes it easier for borrowers to refinance into an FHA loan, allows some down payment assistance providers to participate in the FHA program, and authorizes zero and lower down payment loans for borrowers that can afford mortgage payments but lack the cash for a required down payment. And it more than doubles the current funding level for housing counseling to help both subprime homebuyers and borrowers who are delinquent on their loan payments.

MBA's Robbins noted that these and other provisions provide some of the flexibility that is needed to "continue to evolve to meet consumer demand in a changing mortgage market."

In a Statement of Administration Policy issued Monday, the White House said the legislation would boost the FHA loan limit in high cost areas to 100 percent of Freddie Mac's conforming limit, currently $417,000.

Among concerns outlined by the administration was a provision that limits benefits to first-time buyers, the need for more flexibility to implement risk-based premium pricing, and premium refunds to borrowers with low credit scores after five years. The White House also wants a simpler process for increasing premiums and the removal of a 2 percent origination fee cap on reverse mortgages.

The president "strongly opposes the establishment of a new Affordable Housing Grant Fund linked to increased FHA receipts," the statement said. "The administration is also concerned about a provision that would make it possible for correspondent lenders to use FHA without meeting audit and net worth requirements, which could allow participation by brokers who are inadequately capitalized or have internal control difficulties."

NAMB's Hanzimanolis, who also is owner and president of Bankers First Mortgage Inc., in Tannersville, Pa., noted that one provision enables brokers to obtain surety bonds without having to go through a costly audit.

"That's something we're very pleased about," he said.

But Robbins wasn't all praise and he noted that there are "a few provisions that give us pause and we look forward to working with lawmakers on both sides of the aisle on a reform package."

Spokespersons for Fannie Mae, Countrywide and IndyMac would not comment.

Jerry DeMuth is an award winning journalist who has been reporting for four decades.

e-mail Jerry at [email protected]

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