House Financial Services Committee Passes Comprehensive FHA Reform
The House Financial Services Committee today passed H.R. 1852, the "Expanding American Homeownership Act of 2007" introduced by Representative Maxine Waters, Chairwoman of the Subcommittee on Housing and Community Opportunity, and Barney Frank, Chairman of the Financial Services Committee. The bill would revitalize the Federal Housing Administration (FHA) to restore its historical role in ensuring critically needed mortgage loans for low and middle income families by authorizing zero down payment loans, directing the Department of Housing and Urban Development (HUD) to serve higher risk borrowers who would otherwise turn to predatory and high priced mortgage loan alternatives, and by raising loan limits so that FHA can serve high cost housing markets. The bill now awaits a vote by the full House of Representatives.
"The passage of this bill is a major step towards making FHA relevant again in today's unstable mortgage market where low and moderate income borrowers have been squeezed into unaffordable loan products with no safe options for refinancing, or for entering the housing market as first time, particularly in high cost areas of the country," said Rep. Maxine Waters, Chairwoman of the Subcommittee on Housing and Community Opportunity. "I applaud Chairman Frank for passing this bill out of committee and I call on the Senate to work quickly to modernize FHA and help strengthen the housing market and the economy, as soon as possible."
Specifically, the bill modernizes the FHA and brings it into the realities of the housing market in the 21st century by:
· Increasing loan limits in high cost areas of the country like California, New York, and Massachusetts, where FHA has been driven from the market, forcing many borrowers to turn to high-cost financing and other non-traditional loan products.
· Authorizing zero down and lower down payment FHA loans for homebuyers who could not otherwise make the down payment required under current FHA rules, to make FHA more consistent with other private sector loan products.
· Directing FHA to underwrite to borrowers with higher credit risk than FHA currently serves that are still creditworthy to take out a mortgage loan, but are otherwise now being driven into the subprime loan market, with much higher mortgage rates.
· Permanently eliminating the current statutory volume cap on FHA reverse mortgage loans to permit this program to meet the growing needs of home equity rich, cash poor seniors citizens that need help paying bills or needed home costs, while capping the fees that loan originators can charge senior citizens
· Reinvesting increased FHA profits created by the bill in housing counseling and affordable housing fund activities
The bill includes a number of important changes to the version of the bill that passed the House last year. The bill eliminates the fee hikes from last year's bill for higher risk borrowers that continue to make a down payment, scaling back the maximum annual fee from 2% to .55%. This would reduce fees for a hypothetical family buying a $300,000 home by over $20,000, compared to the bill enacted last year. Unlike last year's version, the bill would also require the additional upfront FHA premium charged to higher risk borrowers be rebated to borrowers that make five years of timely mortgage payments, a rebate of at least three quarters of a percentage point ($2,250 on a loan of $300,000).
The bill also adds a number of homebuyer protections not included in last year's bill for families taking out riskier zero down payment loans, and for borrowers who represent a higher credit risk. Specifically, the bill gives HUD authority to require pre-purchase counseling for riskier borrowers, requires a number of disclosures spelling out the costs and risks of zero down and lower down payment loans, and requires borrowers to receive notice of availability of counseling in the event they fall behind in their loan payments.
The bill includes a provision not in last year's bill authorizing appropriations for affordable housing fund purposes equal to the net profits ("net negative credit subsidy") created by the bill, after first funding an increase in housing counseling from $42 million up to $100 million. Finally, the bill includes a provision, also not in last year's bill, that authorizes loan limit increases for FHA rental housing loans in high cost areas, where current FHA loan limits do not keep pace with local construction costs.
During committee consideration of the bill, the members agreed to amend the bill in the following ways:
· An amendment by Rep. Waters to set upfront premiums on FHA single family loans at levels commensurate with risk, so that HUD can afford to insure loans for such borrowers.
· An amendment by Rep. Frank to increase funds for nationwide housing counseling grants from $42 million to $100 million a year, and to ensure that no funds that are derived from the 203(b) single family loan program may be used for affordable housing fund purposes.
· An amendment by Reps. Frank, Miller, Scott, and Neugebauer to permit mortgage brokers to participate in FHA by posting a $75,000 surety bond, in lieu of the current audit and net worth requirements, with a GAO study of the change and a five year sunset. Before adoption, this amendment was modified by an amendment by Rep. Green to include certain requirements for such mortgage broker participation in FHA.
· An amendment by Rep. Neugebauer to require HUD to conduct a study on its Information Technology needs with respect to FHA.
· An amendment by Reps. Marshall and Brown-Waite to cap loan origination fees on FHA reverse mortgage loans at 2% of the amount that can be borrowed upfront, which would reduce costs for seniors citizens compared to the current 2% cap on a much higher baseline, the maximum mortgage amount.
· Two amendments by Rep. Donnelly to provide for more flexibility for FHA to ensure manufactured housing loans.
· An amendment by Rep. Hodes to ensure that FHA escrow agents bear the cost of any financial penalty based on any failure on their part to make timely payments of taxes and insurance out of an escrow account.
· An amendment by Rep. Maloney to increase the maximum FHA loan amount when the home is also being used to operate a licensed day care facility.
· An amendment by Rep. Dennis Moore to prohibit FHA from unnecessarily raising loan fees, by conditioning any fee increase on a need to keep that particular FHA program from running a deficit.
· An amendment by Rep. McCarthy requiring borrowers who are late on their loan payments from receiving notice of the availability of foreclosure prevention counseling.
· An amendment by Rep. Green to require HUD to create a pilot program for an automated process for borrowers without sufficient credit history.
· An amendment by Rep. Capito to require a government ID of some sort to qualify for an FHA loan.