The U.S. House of Representatives on Tuesday passed legislation that aims to increase home-ownership opportunities for low- and moderate-income Americans through restructuring of Federal Housing Administration policies.

The bill, H.R. 5121, dubbed “The Expanding American Homeownership Act,” was created in response to rising home prices and outdated loan limits that eliminated FHA financing for buyers in many U.S. housing markets.

The bill specifically will:

  • Eliminate the current statutory 3 percent minimum down payment, reducing a significant barrier to home ownership. FHA’s existing down-payment requirement does not meet the demands of today’s marketplace, where most first-time home buyers put down 2 percent or less. The “new” FHA would offer a variety of down-payment options.

  • Create a new, risk-based insurance premium structure for FHA that would match the premium amount with the credit profile of the borrower. It would replace the current structure, in which there is standard premium amount for all borrowers, while still protecting the soundness of its Insurance Fund. FHA would have the flexibility to charge a lower premium for low-risk borrowers, and to charge higher-risk borrowers a slightly higher premium.

  • Increase and simplify FHA’s loan limits. FHA’s loan limit in high-cost areas would rise from 87 percent to 100 percent of the GSE conforming loan limit and in lower-cost areas from 48 percent to 65 percent of the conforming loan limit. 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. 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, down 95 percent from 109,000 in 2000.

“When FHA was formed in 1934, it was an historic event that made home ownership possible for people who had nowhere else to turn,” said Assistant Secretary for Housing-Federal Housing Commissioner Brian D. Montgomery. “We are now closer to another landmark — a modernized, flexible FHA that can respond to the needs of today’s low and moderate-income home buyers who need a helping hand.”

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