110th CONGRESS, LEGISLATIVE ISSUES A - Z
FEDERAL HOUSING ADMINISTRATION (FHA) REFORM
ISSUE: The Federal Housing Administration (FHA) is a government–run entity within the U.S. Department of Housing and Urban Development and provides mortgage insurance on loans made by FHA- approved lenders. Such insured loans include mortgages on single family, multifamily, manufactured homes and hospitals. Created by Congress during the Great Depression, FHA was tasked to help American home owners struggling to make their monthly mortgage payments. Today, FHA is the largest insurer of mortgages in the world, insuring 4.8 million single family mortgages and 13,000 multifamily projects. In addition, the FHA is self-funded by home mortgage insurance payments.
FHA mortgage insurance protects banks, credit unions, and other lenders against loss if a FHA- insured mortgage holder defaults. FHA-backed loans require smaller down payments from borrowers. The cost of FHA mortgage insurance is usually included in the home owner’s monthly mortgage payment. In most instances, the mortgage insurance payment portion of the monthly payment will end after five years or when 22 percent of the loan principal has been paid off, whichever period is longer.
In the wake of the subprime mortgage lending crisis, many Congressional lawmakers have turned to the FHA to prevent struggling homeowners from defaulting on their mortgages. House Financial Services Subcommittee on Housing and Community Opportunity Chairwoman Maxine Waters (D-CA) has introduced H.R. 1852, the Expanding American Homeownership Act of 2007, a bill to modernize the FHA and give it new tools to help mitigate the effects of the subprime crisis. The bill would authorize zero down payment loans (from the current 3% minimum) and raise loan limits. The former provision is designed to make FHA-insured loans more attractive and prevent aspiring homebuyers from seeking predatory mortgage alternatives. The latter provision is necessary especially in states with high housing costs – places where FHA’s loan limits prevent it from even participating in those areas. The bill would raise the FHA loan limit for single-family homes from the current $362,000 ceiling to $417,000. In addition, the bill allows FHA to insure loans to those deemed less credit worthy, a provision also designed to steer mortgage seekers away from predatory lenders. The bill lowers fees for these individuals.
A Senate FHA reform bill, S. 2338, the Federal Housing Administration Modernization Act of 2007, was introduced by Senate Banking Committee Chairman Christopher Dodd (D-CT).
CUNA POSITION: CUNA favors legislative efforts to empower lenders, such as credit unions, to provide homebuyers alternatives to predatory mortgage products.
IMPACT ON CREDIT UNIONS: Credit unions, like other lenders, have been unable to make FHA- insured mortgage loans to its members in states that have high housing costs. H.R. 1852 and S. 2338 would permit credit unions to better fulfill their core mission of “People Serving People” by providing affordable mortgage products to their members.
STATUS/OUTLOOK: On September 18, 2007, the House of Representatives passed H.R. 1852 by a wide margin. During consideration of the bill, an amendment was passed that would raise FHA’s single family loan limits, which now bar loans above 95% of the median home price in each local area. The amendment raises the loan limit in each area to the lower of 125% of the local area median home price or 175% of the national GSE conforming loan limit. The amendment also gives HUD the authority to raise these loan limit amounts by up to $100,000 if market conditions warrant.
Senate Banking Committee Chairman Christopher Dodd (D-CT) introduced a bill much narrower in scope compared to the House-passed FHA legislation. On September 19, 2007, the Senate Banking Committee passed S. 2338, the Federal Housing Administration Modernization Act of 2007. The legislation increases FHA loan limits to $417,000. The bill also lowers the down payment requirement to 1.5 percent. On December 14, 2007, the Senate passed the bill 93 to 1. A House/Senate conference committee will have to resolve the differences between the two competing bills and work out a compromise that can pass both the House and Senate and be signed into law by the President.
The Bush Administration is also weighing in on this issue. It has proposed allowing struggling subprime borrowers to refinance their home mortgages into less-costly FHA loans. Also, it wants Congress to allow FHA to lower down payments and increase loan limits (which the House legislation achieves).
On September 24, 2007, the FHA announced the creation of a program to help homeowners avoid foreclosure. The announcement was made at Opportunities Credit Union in Vermont. Called "FHA Secure," the plan allows homeowners who miss a payment after a reset in adjustable interest rates to refinance their mortgage with FHA at a lower rate.
CUNA will continue to monitor this issue and lobby for the interests of credit unions and their members.
CONTACTS: John Hildreth, (202) 508-6724, jhildreth@cuna.coop.
