Passage of FHA Reform Bill Would Help Homeowners and Homebuyers

WASHINGTON, May 03, 2007 - NAR has supported FHA modernization legislation in H.R. 1852, the Expanding American Homeownership Act of 2007, that would increase loan limits, eliminate the statutory 3 percent minimum cash down payment, and allow FHA flexibility to provide risk-based pricing. NAR also supports the continued availability of FHA loss mitigation programs.

"NAR appreciates the efforts of House Financial Services Committee Chairman Barney Frank (D-Mass.) and Subcommittee on Housing and Community Opportunity Chairwoman Maxine Waters (D-Calif.) for their leadership in protecting the interest of America's homeowners or potential homeowners," said Pat V. Combs, NAR president.  "As some homeowners are faced with adjustable subprime loans resetting at levels that they cannot afford and cooling real estate markets, a reformed FHA would be positioned to offer borrowers a safer mortgage alternative and help bring stability to local markets and local economies," Combs said.

"FHA can once again be a leader in providing safe loan products and preventing foreclosures by authorizing lenders to assist borrowers who are in default. This ability will make a substantial difference for many families that may otherwise face foreclosure," she said.

FHA's loss mitigation program includes mortgage modifications, allowing borrowers to change the terms of their mortgage so that they can afford to stay in their home. The program also offers "partial claim" programs where FHA lends the borrower money to cure the loan default. This no-interest loan is not due until the property is sold or paid off.

"In 2004 alone, more than 78,000 people were able to retain their home through FHA's loss mitigation program, and two years later nearly 90 percent of these families are still in their home. That's what I'd call really making a difference," Combs said.

In addition, NAR believes that increasing FHA mortgage loan limits will help first-time homebuyers, minority buyers, and others who cannot qualify for conventional mortgages. Increasing loan limits will also help people living in high cost areas because the current low FHA limits make FHA unusable. Eliminating the 3 percent minimum down payment will also have positive results for many homebuyers.

Combs noted, "The universal and consistent availability of FHA loan products is the principal hallmark that has made mortgage insurance available to individuals regardless of their racial, ethnic or social characteristics during periods of prosperity and economic depression. The FHA program makes it possible for higher risk, yet credit-worthy borrowers to get prime financing."

NAR thanked the Financial Services committee and expressed agreement that a strong and viable FHA is an important component to a strong and vital housing market.