Washington Report: Subprime Concerns Drive FHA Progress

November 1, 2007

Long-sought efforts by REALTORS® to restore the viability of federally backed mortgage loans are receiving their biggest boost in years as Congress grapples with ways to ease the crisis in subprime financing markets.

Seeing the FHA as the safest way to get mortgage money to borrowers who can’t compete for conventional financing, the U.S. House in late September overwhelmingly passed reforms that NAR has been championing for years.

Shortly after the House action, the Senate Banking Committee passed its version of the reforms, paving the way for a vote in the Senate this fall and moving legislation the closest it’s been to passage since the federal government introduced the reforms with NAR’s support several years ago.

Both the House and the Senate bills would raise the size of FHA loans that borrowers can take out — especially important in high-cost areas like California and Massachusetts — and reduce the down payment borrowers need to make. But the bills differ in some key areas.

The House bill would permit borrowers to take out loans for up to 175 percent of the Fannie Mae and Freddie Mac conforming loan limits, which in the third quarter of 2007 was $417,000 for a single-family house (excluding high-cost areas). It also would eliminate an existing 3 percent down payment requirement. Currently, FHA loan limits are capped at about half of the Fannie Mae and Freddie Mac limits.

The House measure also would allow the FHA to price mortgage insurance premiums based on risk and direct some FHA revenue into a proposed affordable housing trust fund.

The Senate bill would limit loans to 100 percent of the Fannie and Freddie limits and reduce the minimum down payment to 1.5 percent of a house’s price.

Given the differences, lawmakers will have their work cut out for them as they try to craft a single bill. But REALTORS® have more reason for optimism on the FHA front than they’ve had in years.“We’re hopeful that both houses of Congress will meet soon to finalize and enact FHA reform this year,” says NAR President Pat V. Combs.

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