MODERNIZING FHA - FINANCING THE FUTURE

DENVER - Congress created the Federal Housing Administration (FHA) in 1934 to provide families access to homeownership through reasonably priced, low down payment, government-insured mortgages. FHA is a major program of the U.S. Department of Housing and Urban Development. Since its inception, FHA has helped 34 million Americans and their families become homeowners. However, even as FHA's product line remains a solid financing alternative, the mortgage industry now offers a wide variety of loan options, some of which have unfortunately proven costly for a number of homebuyers. Several situations have been publicized and cause us great concern
about the families whose dreams of homeownership have ended unhappily.

FHA business declined in recent years. In 2004, FHA insured 38,800 home loans in Colorado. In 2005, the number declined to 20,000 loans. This is a trend we are committed to reversing. We are dedicated to eliminating the frustration caused by the excessive paperwork and archaic procedures often associated with FHA loans. Our goal
is to revitalize and reinvigorate one of the cornerstones of the American mortgage industry - the FHA insured loan. FHA modernization is a key part of HUD's efforts to support the President Bush's goal of increased homeownership.

Recent changes now allow qualified FHA mortgagees to self-endorse loans without prior FHA review. FHA no longer requires the submission of thick case binders full of documents for each loan. Instead, post-endorsement reviews
are now completed using electronically submitted documentation, thereby eliminating mailing and handling costs. Currently 125 lenders use FHA lender insurance in the 17 states served by Denver's Homeownership Center.

What else have we done? FHA changed the appraisal rules, moving steadily away from burdensome repair and inspection requirements, and we no longer require the completion of minor repairs prior to closing. If a buyer starts with a conventional loan and wishes to switch to an FHA loan, a new appraisal is generally not required. FHA borrowers may now take up to 95% loan-to-value cash out when an FHA insured loan is refinanced, up from the previous 85% allowance. We streamlined the process for approving home improvement loans including those
covering relatively simple projects such as kitchen or bath updates, carpeting, or roof replacement. We revised stringent closing requirements in January to allow mortgagees to collect from borrowers the reasonable and
customary costs that are necessary to close the loan.

Recently, "The Expanding American Homeownership Act" was introduced in Congress to make dramatic changes in
FHA products. The major revisions proposed in Congress include elimination of the current minimum 3% down
payment requirement, and mortgage insurance premiums that vary based on the down payment amount and the borrower's credit history. A low down payment loan will include a higher premium in order to offset potential risk.
Many potential homebuyers who earn a paycheck and have good credit are still not able to save money for a down payment. Lack of a down payment is a significant barrier to homeownership.

Additionally, the legislation will offer the option of lengthening the available loan terms from 30 to 40 years to lower monthly costs to the borrower. The legislation will increase FHA loan limits. In many areas around the country, low loan limits effectively preclude the use of FHA insured mortgages. FHA loan limits in high cost areas will rise from 87
to 100 percent of the GSE (Freddie Mac, Fannie Mae) loan limits. Another proposed change alters rules governing
FHA insurance for condominium mortgages in favor of requirements similar to those in our regular single-family programs. Our condominium rules were written when condos were not a common form of homeownership. Now,
condos represent 25% of the new home market and tend to be an attractive housing choice for first-time homebuyers.

And let's not forget our senior homeowners. The proposal will eliminate the cap on the number of Home Equity Conversion Mortgages (commonly known as reverse mortgages) that FHA insures. These loans are increasingly
popular with seniors who can use them to draw equity out of their mortgages in their retirement years.

FHA is committed to the highest quality customer service. HUD launched a new website at www.FHA.gov featuring concise information needed by the home buying public and a new FHA Resource Call Center is available to answer
your questions at 1-800-CALLFHA.

John Carson
HUD Regional Director - Denver

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