Expanding American Homeownership Act of 2006
But it certainly could not have happened without my ranking member, Mr. Frank, who has the ability to see things in legislation that no one else sees and to bring it to our attention, and to fix what is wrong, and to give support to what is good and helpful when we are trying to pass a significant piece of legislation.
I would like to thank him, and certainly Chairman Oxley. As Mr. Frank said, he is retiring. He will be leaving us. But he has been a chairman who has been fair, he has provided opportunities for all of the members of our committee. He has worked with the subcommittee chairs and ranking members, and we are certainly going to miss him.
I rise in strong support as an original sponsor of H.R. 5121, the Expanding American Homeownership Act of 2006, which represents a major achievement by the Committee on Financial Services and the Subcommittee on Housing and Community Opportunity.
As I said, the leaders, Mr. Oxley, Mr. Frank, Mr. Ney, and all of the other members of the subcommittees who cooperated, deserve a lot of credit for this bill. But I have to mention the staff. The staff on both sides of the aisle worked so hard into long hours of the night helping to straighten out very complicated problems with this bill, and it is because of their dedication and their concentrated work that we are able to be on the floor today. They were also very helpful in working with a rather broad-based coalition that supported this bill, who stand in support of this bill including housing, consumer, and advocacy groups, the National Association of Realtors, the Mortgage Bankers Association, the mortgage brokers. We have a combination of support behind this bill which makes it a strong piece of legislation. This unique piece of legislation is unusual not only because of the combination of support; it reflects a real consensus that FHA can indeed be relevant in today's market.
When Congress enacted legislation in 1934 creating FHA, it intended that the government would make the dream of owning a home a reality for as many Americans as possible. FHA was established under the National Housing Act more than 70 years ago to improve housing standards and conditions. The goal of FHA was to provide an adequate home financing system with access for the average American. FHA pioneered many programs, including the 30-year mortgage. Not only has FHA been a pioneer in housing, it has been a major tool for first-time home buyers and moderate-income families.
Just imagine 70 years ago in 1934 as America was coming out of the worst depression in its history and the impact that FHA had on homeownership. FHA was a brilliant idea then, as it will be again through passage of this bill.
H.R. 5121 is appropriately named the Expanding American Homeownership Act of 2006 because it will, indeed, expand homeownership opportunities for all Americans. There is unequivocal evidence that, without FHA, many first-time home buyers and low- to moderate-income persons would not be able to afford a home. Americans have grown accustomed to FHA for mortgage insurance, guaranteeing their entry into the coveted arena of homeownership.
FHA had come to rely on first-time home buyers and low- to moderate-income persons to justify its existence. In the last few years, however, FHA watched as its share of the mortgage insurance market dwindle, and the groups it traditionally served disappeared. Between 2003 and 2005, nonprime loans grew from $332 billion to $550 billion, more than a 100 percent increase. As a result of this phenomenon, FHA market share fell dramatically. FHA was forced to become the mortgage insurer of last resort rather than the preferred insurer. Without viable FHA alternatives, many home buyers, first-time buyers, minority buyers, and home buyers with less than perfect credit fled FHA for the subprime market, leaving many with few affordable options.
Some have been forced to turn to high cost financing and nontraditional loan products. While these are acceptable for certain borrowers, they can have devastating consequences for others. In fact, when we began consideration of this bill, the foreclosure rate for non-prime loans was approximately twice that of prime loans.
By providing consumers with choice, H.R. 5121 will provide FHA the flexibility to set mortgage insurance premiums consistent with the risk of the loan. FHA will use the borrower's total credit score profile when setting the insurance premium. Borrowers who are low credit risk will pay a lower insurance premium, while borrowers who pose a higher credit risk will be charged a slightly higher premium. As such, FHA will reach deeper into the pool of perspective borrowers while guaranteeing the soundness of the FHA fund.
In the 35th Congressional District in California that I serve, 2,064 loans were insured by FHA in 2001, but only 74 loans were made in 2005. Similarly, FHA programs have been seriously curtailed in just about every region of the country, resulting in fewer and fewer home purchases supported by FHA programs. H.R. 5121 will increase FHA home limits. In many areas of the country, the existing FHA loan limits are lower than the cost of new construction or the median home price. In other areas, FHA had been priced out of the market. As indicated in the committee report that we filed with this legislation, in 1999, FHA insured 127,000 loans in California, while a mere 5,000 loans were insured by FHA in 2005, representing less than 5 percent of the 1999 level. Because FHA business diminished dramatically during this period, in my view, American homeownership did not expand as much as possible. The FHA loan limit of $362,790 in Los Angeles, California indicated that FHA was essentially no longer relevant in that housing market.
Mr. Speaker, in closing, I would simply again like to thank Mr. Ney for having brought to this floor perhaps the most significant piece of legislation of this session, a piece of legislation that is going to benefit all, so many Americans, a piece of legislation that is absolutely going to open up homeownership opportunities in ways that we could not have done. He saved one of the most significant Departments of government by understanding that the FHA was in danger and that it was about to become irrelevant; and because of this legislation, it is revitalized. It can do what those who originally envisioned its possibilities intended for it to do.
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