The House of Representatives passed legislation Tuesday that would expand the pool of borrowers who can take advantage of FHA loan guarantee programs, which have become the centerpiece of the Bush administration’s efforts to help homeowners avoid foreclosure.
HR 1852, The Expanding American Homeownership Act of 2007, would lower down-payment requirements and raise the limits on the size of loans insured by the Federal Housing Administration (FHA). The bill would also allow FHA to serve borrowers who would not previously have qualified because of their credit scores by charging them higher, “risk-based” premiums.
But the version of the bill passed by the House in a 348-72 vote includes some provisions — including a plan to divert surpluses from the loan guarantee program into an affordable-housing fund — that are opposed by the Bush administration (see Inman News story).
An amendment to the bill by Rep. Barney Frank, D.-Mass., would raise the FHA single-family loan limit above the increase supported by the Bush administration. The amendment would allow FHA to insure loans at up to 125 percent of the area median home price or 175 percent of the $417,000 conforming loan limit, whichever is less.
The Bush administration says it supports boosting FHA loan limits from $362,000 in high-cost areas to $417,000, and from $200,000 in lower-cost areas to $271,000. Allowing the FHA to back bigger loans would detract from its mission of serving low- and moderate-income families, the administration maintains.
Although disagreements killed similar legislation in 2006, the Bush administration downplayed the threat of such unresolved issues on the latest bill’s prospects, saying there’s room for compromise as the Senate drafts its own FHA modernization bill.
Assistant Secretary for Housing Brian Montgomery said HUD is “very happy” that Democrats and Republicans “agreed with us we need to do something to make FHA more meaningful in today’s marketplace.”
The Senate Banking Committee is scheduled to hold a markup session today on its version of an FHA modernization bill, with committee chairman Christopher Dodd, D-Conn., having indicated support for a smaller increase in the FHA loan limit than that approved by the House Tuesday.
The Bush administration hopes that its new FHASecure program, which allows FHA to guarantee refinance loans for delinquent borrowers facing interest-rate resets, and risk-based pricing will allow the FHA to assist up to 700,000 borrowers in the next two years or 240,000 in the remainder of the fiscal year.
After unveiling its FHASecure program at the end of August, the administration “has just about reached our limit under our current authority” to help troubled borrowers, Montgomery said. “Without additional legislation, FHA can’t do much more.”
Because FHA’s guarantee program is funded by the insurance premiums paid by borrowers, plans to divert money from FHA into an affordable-housing fund could jeopardize its abilities to pay claims, Montgomery said. The proposed fund duplicates efforts already in place, Montgomery said.
“My central concern is should we stand up another program that’s similar to 34 other HUD programs,” he said.
The bill’s sponsor, Rep. Maxine Waters, D-Calif., said in a statement that the subprime lending crisis has “exploded beyond the poorest renters and homeowners, to threaten the domestic economy.” HR 1852, she said, “is a necessary step in walking us back from the brink and in the direction of meeting the housing needs of all Americans.”
In addition to differences over FHA loan limits and the creation of an affordable-housing fund, other issues to be ironed out include the particulars of risk-based pricing, requirements for housing counseling, and a plan to make it easier for independent mortgage brokers to offer FHA products.
The Bush administration wants to give the FHA more flexibility to set risk-based pricing than the bill approved by the House permits. One area of conflict is a proposal to refund extra premiums charged borrowers with FICO scores below 560 if they make loan payments for more than five years.
HUD is also opposed to requiring borrowers seeking FHA insurance to receive financial counseling, saying a shortage of counselors could derail closings.
The Mortgage Bankers Association (MBA) has also weighed in against counseling requirements, saying real estate agents and mortgage brokers will “push home buyers away from an FHA product if a home purchase could fall through because the potential buyer has to wait several weeks or more to arrange a counseling session.”
The MBA said it’s also opposed to relaxing requirements that mortgage brokers submit audited financial statements in order to qualify to sell FHA products. The bill would allow mortgage brokers to post a bond instead.
“At a time of rising defaults, it is critical to both FHA and its customers that adequate supervisory processes remain in place,” the MBA argued in a Sept. 17 letter to House leaders of both parties.
In its own letter to the House, the National Association of Mortgage Brokers said the group supports the change, saying it would increase the availability of FHA loan products to first-time, minority and low- to moderate-income home buyers by expanding the distribution channels serving FHA.
Montgomery said HUD “continue(s) to believe an audited financial statement is the best way to insure those who do business with FHA … operate in a sound manner. I don’t see us turning away from that.”