David Lightman, the Washington Bureau Chief for the Hartford Courant recently wrote this regarding the FHA Modernization Act of 2007:
WASHINGTON - The Senate Banking Committee today agreed on compromise legislation that will make it easier for consumers to get Federal Housing Administration-backed loans.
The “FHA Modernization Act of 2007,” considered one of Washington’s most important efforts to ease the subprime mortgage crisis, won easy approval and is headed to the Senate floor.
“We need to make sure that credit is available, including for subprime borrowers, on fair terms so that the people of this country have an opportunity to build wealth for the future,” Committee Chairman Christopher J. Dodd, D-Conn., told his colleagues.
“A revitalized, strengthened, and modernized FHA can be — and, under this legislation, will be — a source of this constructive, wealth-building credit,” he said, “both for new homeowners and for people who are seeking a way out of the abusive loans in which they are currently trapped. ”
The FHA, created early in the New Deal to give homeowners a boost, was an important player in mortgage markets for years. But its influence waned in recent years, as lenders more aggressively sought subprime customers, and the FHA got a reputation as an unwieldy bureaucracy.
But Dodd and others wanted to bring the FHA back, and crafted the modernizing legislation.
Among the bill’s provisions:
# Higher FHA loan limits. Limits on an FHA loan can rise to 100 percent of the median home price in an area, up from 95 percent, or $417,000, whichever is lower.
Currently, FHA loans cannot exceed $200,160 to $362,790, depending on the housing market in certain areas. In Fairfield County, for instance, the cap is at the high end, but in Windham County, it’s the lower amount.
The White House has said it “strongly opposes” any provision to back mortgages above $417,000.
A policy statement said the program “should remain targeted to traditionally underserved homebuyers, such as low and moderate income families.”
# Smaller down payments. Currently, such loans require at least 3 percent down. The Dodd bill cuts that to 1.5 percent, in most cases. The down payment reduction had been a source of controversy, and the 1.5 percent limit is seen as an important compromise. Some senators wanted to allow no money down.
# Easier-to-get reverse mortgages. Elderly homeowners would find the loan limit up, a key provision championed by Republican committee members.
# Lower origination fees for elderly homeowners. The current fee is 2 percent; it would drop to 1.5 percent.
The FHA measure has picked up strong support. Dodd’s chief collaborator was Sen. Mel Martinez, D-Fla., general chairman of the Republican National Committee, and letters of support came from the Mortgage Bankers Association, the Realtors, the Homebuilders, and lenders such as Bank of America, LendersOne, JP Morgan Chase, Wells Fargo and Countrywide.
