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REALTOR®: FHA Changes would make housing more affordable in California

Wednesday, September 19, 2007

Silicon Valley Realtors hailed the passage of H.R. 1852 "Expanding American Homeownership Act of 2007" in the House of Representatives last week. The bill seeks to modernize and update the National Housing Act and enable the FHA to use risk-based pricing to more effectively reach underserved borrowers.

H.R. 1852 would revitalize the FHA mortgage insurance program to compete in the 21st Century housing market, once again providing American homeowners with safe, affordable mortgage alternatives. FHA products are safe, thanks to appropriate underwriting and loss-mitigation programs, and fairly priced without resorting to teaser rates or negative amortization.

The House by voice vote also adopted an amendment offered by Representatives Barney Frank, Gary Miller, and Dennis Cardoza to raise the FHA single family loan limit, by "establishing such limit in each area as the lower of (a) 125 percent of the local median area home price or (b) 175 percent of the national GSE conforming loan limit; retain the FHA loan floor provision in the reported bill of 65 percent of the GSE conforming loan limit; and also gives HUD authority to raise these resulting loan limit amounts by up to $100,000 by area and/or by unit size 'if market conditions warrant.'"

Despite the successes of the FHA program, too many potential homeowners in underserved populations and high cost areas like California continue to be excluded from the American dream of owning a home. FHA's market share has dwindled because its loan limits, inflexible down payment requirement and fee structure have not kept pace with the current mortgage marketplace.

Realtors believe FHA modernization should include increasing loan limits, eliminating or reducing the amount of cash down payments required for FHA loans, establishing risk-based pricing, revising prepayment penalty regulations, and increasing loss mitigation efforts. They also support separate legislation to abolish the mortgage cancellation tax that consumers are hit with when their mortgage is forgiven by their lender.

H.R. 1852 modernizes the FHA mortgage insurance program, once again providing American homeowners with safe, affordable mortgage alternatives. Without reform, FHA would remain unavailable to many homebuyers or those needing to refinance. FHA products are safe, thanks to appropriate underwriting and loss-mitigation programs, and fairly priced without resorting to teaser rates or negative amortization.

The bill would 1) increase the FHA loan limits nationwide and in high cost areas; 2) eliminate the 3 percent down payment requirement on FHA loans for first time homebuyers; 3) extend the loan term to 40 years; 4) allow FHA to risk-base price their products; 5) eliminate the cap on the number of reverse mortgages that FHA can insure; and 6) streamline usage of the FHA condominium loan program. It would also allow excess FHA funds to be put into an affordable housing fund, rather than go to the US Treasury.

A companion bill in the Senate is expected to be introduced in the coming weeks.


The Silicon Valley Association of REALTORS® (SILVAR) is a professional trade organization representing over 4,000 REALTORS® and Affiliate members engaged in the real estate business on the Peninsula and in the South Bay. SILVAR promotes the highest ethical standards of real estate practice, serves as an advocate for homeownership and homeowners, and represents the interests of property owners in Silicon Valley.

The term "REALTOR®" is a registered collective membership mark which identifies a real estate professional who is a member of the National Association of REALTORS® and who subscribes to its strict Code of Ethics.

Variations of this article have appeared in local area newspapers.

For further information, please contact Rose Meily at SILVAR Public Affairs, email , or phone (408) 200-0109.

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