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Changes Could Transform FHA

Congress listens to lenders, builders & HUD

April 6, 2006

By MortgageDaily.com staff


Hoping to increase government-insured mortgage originations and cash available for new homes, mortgage bankers and homebuilders have thrown their support behind FHA-insured loan reforms proposed by the Bush administration.

The executive vice president and chief executive of the National Association of Home Builders, Jerry Howard, expressed the group's support in testimony before Congress Wednesday, saying that statutory and regulatory constraints have limited the Federal Housing Administration's ability to respond to the needs of borrowers, according to an announcement.

"All too often, the differences between the FHA's requirements and those for conventional mortgages have been viewed by lenders, appraisers and others as a disincentive to use FHA programs," Howard said in a prepared statement. "And FHA's unique and often burdensome requirements have caused many home builders to avoid using its programs to build homes that otherwise would have been well-suited to borrowers who planned to use FHA-insured mortgage loans."

Mortgage Bankers Association Chairwoman Regina Lowrie, who also testified at the "Transforming FHA for the 21st Century" hearing, supported Howard's statements.

"FHA is a vital program that provides affordable financing to help bridge the homeownership gap," Lowrie said in an MBA announcement. "Unfortunately, FHA's ability to reach underserved populations is stymied by an outdated statutory framework that does not allow it to meet consumer demand in today's ever evolving mortgage market."

The FHA Modernization Act presentation was made to the House Subcommittee on Housing and Community Opportunity.

The Department of Housing and Urban Development suggested in its own statement that many of the borrowers who would qualify under the proposed changes are currently willing to pay subprime rates.

HUD said the act would enable the premium charged on an FHA loan to match the credit quality of the borrower.

"A new, modern-era FHA would offer many hard-working Americans a variety of homeownership options that are safer and at a fair price," Federal Housing Commissioner Brian D. Montgomery reportedly told Congress.

NAHB voiced its support for FHA's proposed risk-based mortgage insurance premium pricing structure.

Another improvement includes increasing the FHA loan limit to the conforming limit established for Fannie Mae and Freddie Mac -- currently set at $417,000.

"In many areas of the country, the existing FHA limits are lower than the cost of new construction, eliminating FHA financing as an option for buyers of new homes in those markets," HUD said in its announcement. "FHA has simply been priced out of the market in other areas, such as California, where FHA insured only about 5,000 home mortgages in all of 2005."

The homebuilders said they support the administration's proposal to increase the minimum FHA mortgage amount.

The act would also eliminate the 3% downpayment requirement.

NAHB said the Congress-established loan structures and downpayment requirements seriously constrain the range of mortgage products needed to fulfill FHA's housing mission. The group expressed support for H.R. 3043, which would establish a zero downpayment pilot program and other reduced-downpayment mortgage options, as well as to permit the maximum loan maturity to 40 years.

Reverse mortgages would also be expanded, HUD said, and improvements would be made for financing manufactured housing and condominiums.

Both MBA and NAHB urged Congress to provide the FHA program with flexible authority to introduce new products and program changes, including a flexible downpayment program and FHA loan limits that will enable financing in high cost areas.

"NAHB believes that Congress should grant the FHA broader authority outlined in the Administration's fiscal 2007 budget proposal and detailed in draft authorizing legislation," Howard said.

NAHB also backs HUD's request to consolidate all the single-family mortgage insurance programs under one section of the National Housing Act, including loans for condominiums, which are often burdensome and differ significantly from mortgages securing detached single-family homes.

Mortgage bankers pushed for internal strengthening of the FHA. MBA believes the federal mortgage insurer needs the ability to directly invest a portion of its revenues into technology improvements to improve management of its portfolio, gain efficiencies, and lower operating costs.

Additionally, MBA said it is necessary for FHA to improve human resource management controls in order to "attract and manage talented and knowledgeable industry professionals."


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