The Bush administration says it’s “strongly opposed” to a proposal to allow the Federal Housing Administration to guarantee loans of up to $500,000, saying the program should be used to help low- and moderate-income families.
In a policy statement on HR 1852, a “modernization bill” aimed at allowing FHA to serve more borrowers, the administration also warns that the bill creates too many restrictions on a plan to expand the pool of FHA-eligible borrowers by introducing risk-based pricing.
The administration supports provisions of the bill that would raise FHA loan limits to $417,000 in high-cost areas and $271,000 in lower-cost areas. The limits are currently $200,000 in lower-cost areas and $362,000 in high-cost areas.
But that’s far enough, the administration argues, responding to an announcement by Rep. Barney Frank, D-Mass., that he plans to introduce an amendment to the bill that would raise the limit to $500,000.
Some critics have argued that FHA has become almost irrelevant to home buyers in high-cost areas, because the median home price often exceeds its loan limits.
But the administration maintains that the FHA should not be allowed to insure loans larger than the $417,000 conforming loan limit — the maximum loan eligible for repurchase by Fannie Mae and Freddie Mac — because the program “should remain targeted to traditionally underserved homebuyers, such as low- and moderate-income families.”
FHA loan guarantees — which can lower the cost of borrowing by helping home buyers obtain better interest rates — are the centerpiece of the administration’s plan to help troubled borrowers who may have trouble making mortgage payments when their interest rates reset.
On Aug. 31, the administration rolled out its FHASecure loan program, which gave FHA the authority to insure refinance loans for delinquent borrowers.
The administration also supports provisions of the modernization bill that would allow the FHA to adopt risk-based pricing on a wide-scale basis, allowing some borrowers who would not previously have qualified for such programs to participate by paying higher premiums.
FHA will introduce risk-based pricing on a limited basis in January, and HR 1852 would allow the program to be expanded to serve a wider pool of borrowers with lower credit score and down payment requirements.
While the Bush administration supports risk-based pricing, it claims that HR 1852 doesn’t give the FHA enough flexibility to implement it. As written, the bill would leave in place a statutory cap on annual premiums and require FHA to refund the extra amount charged borrowers with FICO scores below 560 if they make loan payments for more than five years.
The administration also objects to a proposal to establish a new Affordable Housing Grant Fund linked to the expected increase in FHA receipts, saying FHA receipts are already credited toward HUD appropriations and that diverting that revenue would reduce resources available for other HUD programs that assist low income families. FHA receipts, the administration said, also tend to fluctuate with housing market conditions “and bear little relation to any potential program funding needs.”
The administration also argues that lower down payment requirements should not be limited to first-time home buyers, saying that could make it harder for homeowners to refinance existing mortgages into an FHA-insured loan.
The bill would also remove the statutory cap on reverse mortgages FHA is allowed to insure, and permit home equity conversion mortgage (HECM) program to be used for condominium units and purchase transactions, moves supported by the administration.